Top Analyst Upgrades Nvidia on the Back of Strong Balance Sheet and AI Capabilities

Although the current period will no doubt be remembered as the time when the world fought the invisible enemy coronavirus, its is safe to assume the Street will also remember the period’s extreme bouts of volatility, too. Case in point: Nvidia (NVDA) stock had its best performing week in over two years, skyrocketing 25%.

Adding to the good news, Needham’s Rajvindra Gill upgraded his rating on the chipmaker from Hold to Buy. However, Gill’s price target of $270 implies modest upside from current prices. (To watch Gill’s track record, click here)

So, what is behind the 5-star analyst’s reevaluation? While acknowledging that “it’s risky to upgrade a stock given this vicious pandemic and the subsequent economic fallout,” Gill says that during uncertain times such as these “superior balance sheets remain supreme.” And, accordingly, Nvidia fits the bill. The company has a net cash position of $8.9 billion which includes cash and investments worth $10.9 billion minus $2 billion of debt.

Gill also believes Nvidia’s largest growth driver, its data center, which made up 31% of F4Q20 sales, will weather the current storm and keep performing in 2020, as the amount of people currently forced to work form home will only increase demand for cloud storage. “We expect robust data center spending by hyperscalers, enterprise, and vertical customers throughout the rest of 2020,” he said.

Lastly, Nvidia’s role as an increasingly big player in AI solutions can have an impact in the fight against COVID-19. The analyst forecasts “a surge in demand for NVDA’s GPUs in the medical field, particularly in DNA sequencing and drug development. “

Gill added, “We expect the pandemic and the public health risk it poses to invigorate the use of NVDA’s GPUs in the medical field. We believe that the more sequencing that can be done to better understand, identify and verify characteristics of the genetic makeup of the virus and patients who contract it (both during and post-infection), the quicker we would be able to move on to potential treatments and immunotherapies.”

Is the Street on the same side as the Needham analyst? Absolutely. Nvidia’s Strong Buy consensus rating breaks down into 27 Buys, 2 holds, and a single Sell. The average price target comes in at $305.28, and implies possible upside of nearly 19%. (See TipRanks’ Analysts’ Top Stocks)

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