Nvidia Stock Touches All-Time Highs Over Earnings Enthusiasm

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Nvidia Stock Touches All-Time Highs Over Earnings Enthusiasm

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What happened?

Nvidia (NASDAQ: NVDA) stock jumped 3.3%, to 350.80 just a few days before its earnings. Earlier in the session, Nvidia’s shares reached an all-time high of 356.66.

So what?

There are multiple reasons for the rise of Nvidia stock prices, including strong demand for the company’s graphics processors from public cloud operators and a positive investor reaction to the company’s $7 billion acquisition of the Israeli computer-networking company Mellanox. Demand from the core gamer PC market is still strong.

Breakdown of revenue from end market shows that the company earned $1.4 billion from gaming $968 million from Datacenter in the latest quarter.

Nvidia is going to report earnings for its April quarter on Thursday, after the close of trading, and analysts are getting hyped. On Monday, BMO Capital analyst Ambrish Srivastava raised his rating on the stock to Outperform from Market Perform, with a target of $425 for the stock price, up from $285. The company, he says, is “entering beast mode.” The new price target represents a potential upside of 25% from the stock’s previous closing price.

“While the CPU will always be an important part of the solution, the GPU, and specifically what NVIDIA has done with its GPU along with its software architecture, positions the company uniquely to be the prime beneficiary as we look over the next five years or so. We also believe the acquisition of Mellanox makes NVIDIA an even more formidable presence in the data center market,” Srivastava said.

That booming market makes Nvidia an even more attractive play ahead of its earnings. BMO increased its annual datacenter revenue run rate forecast to at least $20 billion from $4.8 billion in 2020.

“Our view is that the company’s execution and its latest release of its datacenter suite of products suggests the software and hardware moat the company has created is getting deeper and wider,” Srivastava said. “This is particularly, true, in our view, as we head into an era of compute that is opening an opportunity in acceleration for NVIDIA.”

Today, Deutsche Bank increased its target price on Nvidia stock from $290 to $300. Last week, Jefferies increased its target price from $290 to $370. Raymond James increased its target price to $330 from $300. Meanwhile, Rosenblatt Securities lifted Nvidia’s target price to $340 from $315. Wedbush increased its target price by $29 to $340, while Needham increased it to $360 from $270.

Analysts’ recommendations for Nvidia stock

Among the 40 analysts covering Nvidia stock, 32 recommend a “buy,” six recommend a “hold,” and two recommend a “sell.” The mean target price of $323.77 implies a 4.7% downside from the closing price of $339.63 on May 15.

Peer comparison

AMD (NYSE: AMD) delivered a first-quarter revenue of $1.79 billion, which represents an increase of 40.4% YoY. Wall Street expected revenue of $1.78 billion. The company posted an adjusted EPS of $0.18, which met the consensus estimate of $0.18.

Intel (NASDAQ: INTC) delivered a first-quarter revenue of $19.8 billion, which represents an increase of 23.5% YoY. Wall Street expected revenue of $18.70 billion. The company posted an adjusted EPS of $1.45, which beat the consensus estimate of $1.28.

Nvidia’s stock returns

Nvidia stock rose 3.06% on May 18 and closed at $350.42 with a market cap of $215.3 billion. The stock was trading 0.1% below its 52-week high of $356.66. Meanwhile, the stock was trading 156.1% above its 52-week low of $132.60.

On May 18, the S&P 500 Index rose by 2.93%. Intel and AMD lost 1.35% and 0.57%, respectively, on the same day.

Now what?

First-quarter earnings expectations

Nvidia will likely release its earnings results for the first quarter fiscal 2021, which ended in April, on Thursday 21st May after the closing bell. In the first quarter, Wall Street analysts expect Nvidia to post sales of $3.0 billion—a rise of 34.5% YoY (year-over-year) compared to $2.5 billion in the first quarter of fiscal 2020. Also, analysts expect the company’s adjusted EPS to rise by 91% YoY to $1.68 in the first quarter.

Four straight earnings beats have gotten investors more optimistic about the market for graphics cards used not only in video games, but also due to the company’s exposure to multiple secularly growth markets such as the datacenter, autonomous driving, artificial intelligence, among others. All told, Nvidia’s guidance on Thursday will be the key factor in whether the stock will go higher or succumb to profit taking.

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