Nomura analysts explain the future of semiconductor firm NVIDIA Corporation (NASDAQ:NVDA) and casino resort company Wynn Resorts, Limited (NASDAQ:WYNN) following analyst events and a pre-earnings announcement, respectively. Both are neutral on the two companies, citing near term benefits mixed with long term uncertainties.
Analyst Sanjay Chaurasia weighed in on NVIDIA after attending the GTC 2016 (GPU technology conference) event and the company’s analyst day. The analyst cites several “key takeaways” from the GTC 2016 related to the company. First, “Similar to last year’s GTC, much of the focus was on Deep Learning and on expanding use-cases of GPU accelerated computing in data centers.” Chaurasia highlighted an emphasis on expanded SDK availability, GPU Inference Engine availability, and updates to SDK in terms of “new features for VR (Iray VR), gaming, design visualization, and self-driving cars (end-to-end HD mapping).” Second, the company unveiled the 16 nm GP100 chip, the company’s biggest GPU which is specifically built for deep learning applications. The company expects to start shipping the chip “first to cloud data center customers and then to OEMs in Q1,” with a $129,000 price tag.
The analyst reveals his thoughts on the unveiling of the DGX-1 deep learning system and the Tesla M4/GIE server card. He states, “We believe availability of DGX-1 for neural network training and Tesla M4/GIE for inferencing could accelerate experimental infrastructure build-out at several companies such as Google, IBM, Baidu, and Microsoft.” He believes this opportunity could drive revenues of $50-100 million in FY 17, though notes his current estimates “of $441m (up 35% yoy) and another 22% yoy growth in FY18 [are] likely factoring-in this upside from Deep Learning.” He continues, “We believe Nvidia’s competitiveness in Deep Learning is very strong vs. alternative approaches such as FPGAs.” However, the analyst is unsure on the “size of the deep learning opportunity.”
Chaurasia then comments on the company’s analyst day. He states, “Nvidia did not provide any specific financial guidance at the analyst day, but indicated that it expects gaming to continue to grow and sees data center to be its second biggest growth driver.” While revenue from Intel licensing “is expected to go away in 1CQ17,” the company believes that growth in gaming, cloud and HPC, and enterprise should drive “an upward bias to GMs.” The company also informed analysts that 70% of its installed base of GE-Force “is on older generation GPUs.” However, the company expressed a shift in focus in gaming. The analyst elaborates, “We believe OEM gaming focus, VR, and launch of Pascal based FinFET GeForce GPUs (Computex in May) should drive a healthy GPU refresh, resulting in gaming growth likely higher than our estimate in FY17.” In addition to updates on its professional graphics segment, the company “highlighted a $6-8B opportunity within digital cockpit ($2B), self-driving cars ($2B), and transportation-as-a-service ($2-4B).”
The analyst maintains his Neutral rating on the stock due to deep-learning uncertainty and discontinued Intel revenues. According to TipRanks, Sanjay Chaurasia has a 44% success rate recommending stocks with an average return of 2.3% per recommendation. Out of the 19 analysts who rated NVDA in the last 3 months, 7 are bullish, 1 is bearish, and 11 remain neutral. The average 12-month price target for the stock is $35.11, marking a 1% downside from current levels.
Wynn Resorts, Limited
Analyst Harry Curtis explains his thoughts on Wynn following the company’s pre-announced 1Q16 results. The analyst notes that for its Macau resort, gross gaming revenue was lower than his estimates, EBITDA surpassed his estimates, which could be attributable to labor shifts to its second Macau resort, Wynn Palace, set to open later this year. However, the analyst is “not sure if it occurred but the company has mentioned a labor shift in that time frame.” He continues, “We will get a clear picture of the shift in pre-opening expenses when WYNN releases its income statement in several weeks.” The analyst then comments on Macau’s VIP margin, believing it may display growth in the 1Q16 report due to an increase in direct customers as part of its VIP base. He states, “We believe that WYNN has seen a sequential increase in its premium direct business, which accounts for its outsized sequential growth vs its other competitors.”
Regarding its Las Vegas resort, the announced EBITDA fell short of his estimates due to 17% lower table volumes, a “soft Revpar” and lower than expected margins due to declining revenues. The analyst believes that the “stock has gotten ahead of itself.” He states that currently, “a meaningful recovery in GGR has been priced in”, though notes that it is “unlikely to happen in the near term,” due to shifts in China’s gambling policies. The analyst expresses concern regarding the Wynn Palace as well as 2 other planned properties. He states, “We are encouraged by WYNN’s ability to attract incremental high-end customers, but we continue to be concerned that a modest sequential increase in revenues will not be enough to support WYNN’s new property, as well as two others within the next 9-12 months.
The analyst reiterates a Neutral rating on the stock with a $70 price target. According to TipRanks, analyst Harry Curtis has a 68% success rate recommending stocks with an average return of 13.6% per recommendation. Out of the 11 analysts who have rated the stock in the past 3 months, 6 gave a Buy rating while 5 remain on the sidelines. The average 12-month price target for the stock is $88.60, marking a 0.05% downside from current levels.