UPDATE: Nvidia shares close at record as data center, gaming sales drive price target hikes

11/10/17 04:18 PM EST

By Wallace Witkowski, MarketWatch

Analysts hike Nvidia stock price targets by 13%, on average

Nvidia Corp. shares surged Friday, closing at a record high, after third-quarter earnings blew past Wall Street estimates and more than half of the analysts who cover the graphic processing unit maker responded by hiking their price targets on the stock.

Nvidia (NVDA) shares rallied 5.3% to close at a record $216.14, after touching an all-time high of $218.67 intraday. Shares are up nearly 103% for the year, compared with a nearly 44% gain in the PHLX Semiconductor Index and a 15% gain in the S&P 500 index .

At the close, more than 31 million shares of Nvidia had exchanged hands, crushing the 52-week average daily volume of 18 million shares. That interest made it the fifth most actively traded stock on Friday, just behind other chipmakers like Advanced Micro Devices Inc. (AMD) and Micron Technology Inc. (MU)

Of the 36 analysts that cover Nvidia, 17 have buy or overweight ratings, 15 have hold ratings, and four have sell or underweight ratings. Following the earnings report, 20 analysts raised their price targets on Nvidia for an average target price of $205.68, according to FactSet. Prior to earnings, the average price target was $179.19.

Analysts, on average, are now expecting fiscal 2018 earnings from Nvidia of $4.10 a share, up from a previous consensus of $3.64 a share.

Late Thursday, Nvidia reported third-quarter results that burned past consensus estimates (http://www.marketwatch.com/story/nvidia-earnings-roar-past-street-estimates-but-shares-struggle-for-direction-2017-11-09) by 38 cents a share for earnings and by $280 million for revenue, beating revenue estimates in all product categories except auto hardware and showing a more than doubling of growth in data center sales.

Here's a roundup of what analysts had to say:

Jefferies analyst Mark Lipacis, who has a buy rating, raised his price target to $240 from $230, on the basis that he expects continued growth in data center and gaming segments to continue over the next 12 to 18 months. He notes:

NVDA's latest datacenter GPU solution Volta ramped materially and drove sales to $501m (+20% QQ, +109% YY) during the OctQ. NVDA's Datacenter sales now annualize at $2.0b, or 11% of INTC's DCG business. NVDA noted that there are now more than 1,200 companies using its Volta-based inference platform, which we believe will contribute to the next leg of growth for Datacenter. 

Read: Opinion: Intel bets big on graphics by hiring legendary AMD executive (http://www.marketwatch.com/story/intel-bets-big-on-graphics-by-hiring-legendary-amd-executive-2017-11-09)

Mizuho analyst Vijay Rakesh, who has a buy rating, also raised his price target to $225 from $220, based on the strength of data center and gaming sales.

MKM Partners analyst Ruben Roy, with a neutral rating on Nvidia and "fair value" price of $186, raised his unadjusted earnings per share estimate to $4.55 from $3.75 for fiscal 2019, and said that valuation on the stock kept him on the sidelines. He noted:

Even with the material uptick in our forecast, though, NVDA shares continue to trade at a significant premium to the semiconductor peer group at 45.1x versus the peer group average of 20.2x. While we believe that NVDA's positioning in multiple multi-billion dollar growth markets should warrant a premium to its peer group, we think that the current valuation reflects the company's solid execution and medium-term growth prospects. 

RBC Capital Markets analyst Mitch Steves, who has an outperform rating and raised his price target to $240 from $230, brushed off the company's sequential halving of cryptocurrency-mining-based sales to $70 million in the third quarter from $150 million in the second, believing this will fade from investor focus. He said:

The company exceeded high expectations particularly as its stock price appreciated materially intraquarter. We think the numbers were "enough" and the bull case moves up a tad from an EPS perspective, which should create the case for a $240 valuation, which is where we take our price target. 

Raymond James analyst Chris Caso, who has an outperform rating on Nvidia and raised his price target to $250 from $180, also downplayed the dropoff in crypto-related sales. He noted:

We expect some degree of concern about the potential effect of cryptocurrency on GeForce revenue, but management appears calm, and Datacenter is where investors are focused. With Volta in early days with clear signs of traction and an eventual Volta gaming cycle on the come, we don't see a reason for the momentum to slow. Despite a premium valuation, we continue to consider this a difficult stock not to own. 

Oppenheimer analyst Rick Schafer, with a perform rating and no price target, looked to Nvidia's data center sales, which more than doubled to $501 million, above the consensus view of $461.1 million. He noted:

Tesla V100's rollout allowed the closely watched segment to more than double (Y/Y) for the sixth consecutive quarter. We believe this reaffirms the significant market size and opportunity presented by AI, and NVDA's virtual monopoly in datacenter accelerators. 

Susquehanna Financial Group analyst Christopher Rolland, who has a neutral rating on Nvidia and raised his price target to $185 from $155, called those data center gains "a bona fide juggernaut" but, like other less bullish analysts, turned the topic back to the stock's high valuation. He said:

-Wallace Witkowski; 415-439-6400; AskNewswires@dowjones.com

In short, there is a lot to love, with the exception of valuation at 12x revenue. We would prefer to wait for a pullback to become more opportunistic (admittedly we have been waiting for a while). 
 

(END) Dow Jones Newswires

11-10-17 1618ET

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