Nvidia (NVDA) stock has had a rocky 2019, which has Wall Street eyeing the company’s 2Q earnings set to be released this week. Nvidia shares have swung up and down so far in 2019, with the stock’s ~10% YTD growth lagging the S&P 500’s 13.5% return.
The chip business is highly seasonal, and 5-star Susquehanna analyst Christopher Rolland believes that the seasonality adds risk to the quarter. Nonetheless, Rolland has a Positive rating on Nvidia stock along with a $190 price target, which implies about 27% upside from current levels. (To watch Rolland’s track record, click here)
Although Rolland notes the seasonality risk, there are some positive signs that could help Nvidia achieve strong financial results. One of the positive developments is the Nintendo Switch Lite, which should generate substantial early revenue for Nvidia. In the broader gaming space, Rolland expects Nvidia’s initial channel fill of Super RTX cards to help the company best its typical 2Q results. However, the Street expects 2Q gaming revenue to be up 22% q/q, whereas Rolland is slightly more bearish on the division at a 7% projected increase q/q. On a positive note, Nintendo has recently reaffirmed its 18 million sales target for 2020, and the addition of the Nintendo Switch Lite shows that Nintendo believes the device will hold up strong amid the ongoing trade war.
Nvidia is struggling in the data center market, which was backed up by Rolland’s Asia checks which showed significant weakness. However, Intel has much more exposure in the Enterprise market, so relatively Nvidia is better positioned to deal with the recent downtrend in Enterprise. Even with the struggles, expectations were set low, so while Rolland does not expect revenue beats in the segment, he does think that the results “may be ‘better than feared.’”
Overall, Rolland thinks the bullish trends will not meaningfully appreciate the stock until Nvidia releases its 7nm a100 chip. The 7nm chip could come late this year, but Rolland would not be surprised if it comes in the first half of 2020.
Rolland views Nvidia “as a pure and levered way to invest in the future prospects of the GPU,” which is a device Rolland thinks is “undergoing a renaissance.” Of Nvidia’s four key markets (Auto, Datacenter, Gaming, and PC), Rolland thinks that all of them except for the PC market will experience growth that surpasses the semiconductor market by 3x. With such a unique growth opportunity in almost all of Nvidia’s key businesses, the analyst believes the stock is worth holding amid some short-term headwinds.
All in all, the rest of Wall Street is generally bullish on Nvidia along with Rolland, considering TipRanks analytics showcase NVDA as a Buy. Out of 27 analysts polled in the last 3 months, 18 are bullish on Nvidia stock, 8 remain sidelined, and only one is bearish on the stock. The average price target stands at $186.95, which represents about 25% upside from the current share price. (See NVDA’s price targets and analyst ratings on TipRanks)