Merrill Lynch Makes a Bullish Case for NVIDIA Corporation (NVDA)

NVIDIA Corporation (NASDAQ:NVDA) posted strong second quarter results for the fiscal year of 2017. Merrill Lynch analyst Vivek Arya is left in the wake of this stellar quarter declaring NVIDIA as “perhaps the only investable way in semis to benefit from large and growing markets in PC gaming, artificial intelligence, deep learning, virtual reality and self-driving cars.” Accordingly, the analyst reiterates a Buy rating on “top pick” NVDA, while raising the price target from $65 to $72.

From Arya’s standpoint, NVDA’s second-quarter sales were “solid,” reaching $1.4 billion, a year-over-year increase of 24% and 5% above the Street’s estimates. Additionally, NVIDIA’s EPS saw a 55% boost, coming in 11% ahead of consensus. The graphics chip maker’s guidance issued for its upcoming third-quarter carries the expectation for sales to continue an upward trend of 29% in year-over-year growth, anticipated to reach $1.68 billion. This expectation beats the Street by 16% and Arya notes the guidance hits over the “highest sell-side estimate” of $1.58 billion. After observing these robust results, Arya has raised his FY17/18E (~ CY16/17) pf-EPS  estimates by almost 15% up to $2.34/$2.32.

Arya affirms, “The stock was up 81% YTD heading into earnings (vs SOX up 17% YTD), so we expect volatility and “sell the-news” near-term. We view NVDA as a unique franchise in a rapidly consolidating industry, with a bull-case scenario of $3.25-$3.50 pf-EPS, driving further valuation upside on 25x PE ex-cash.”

Additionally, Arya believes the Street has been “underestimating strength of PC gaming upgrades,” and as such, the analyst assesses that this has left consensus underappreciating NVIDIA’s PC gaming franchise, a franchise that comprises of 60% of the company’s sales totaling $3.5 billion in value. Moreover, the analyst highlights that this is a franchise continuing to grow over 25% annually.

With NVDA owning over an estimated 60% share of the market with its graphics accelerator chips, which Arya belives adds to $1 billion currently with potential to grow to be $5 billion over time, NVDA is at an excellent position with an “early/durable start,” ready to brace itself against competitors like INTC and internal projects at cloud providers.

According to TipRanks, five-star analyst Vivek Arya is ranked #294 out of 4,120 analysts. Arya has a 55% success rate and earns 12.0% in his yearly returns. When recommending NVDA, Arya yields 51.8% in average profits on the stock.

TipRanks analytics show NVDA as a Buy. Based on 20 analysts polled in the last 3 months by TipRanks, 11 rate a Buy on NVIDIA Corporation, 7 maintain a Hold, while 2 issue a Sell. The consensus price target is $64.97, marking a close to 3% upside from where the shares last closed.

Recommended Article: This Top Analyst Remains on the Sidelines with NVIDIA; Here’s Why

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