Nvidia is getting a New Year’s Eve boost from Benchmark analyst Ruben Roy, who repeated his Buy rating on the chip maker’s shares, while lifting his target for the stock price to $275 from $240.
While Nvidia stock (ticker: NVDA) is up 75% in 2019, demand for the company’s graphics processors in recent quarters has been soft. In Nvidia’s fiscal third quarter, ended Oct. 27, revenues were down 5% year over year.
But Roy foresees a huge rebound in 2020. He is projecting that revenue will increase by 20% and earnings will rise 34%.
Roy wrote in a research note Friday that he expects the company to benefit from a rebound in data-center spending, as well as improving demand for chips for playing videogames on PCs. Roy expects those factors and the pending completion of the company’s acquisition of Mellanox Technologies (MLNX), a data-center networking company that Nvidia agreed to buy in March, to serve as catalysts for the stock.
The analyst also sees Nvidia’s hefty investment in software as boosting the company’s opportunity in artificial-intelligence applications.
“Intel’s recent acquisition of Habana Labs, a privately held developer of deep learning accelerator devices for data center applications, illustrates the increasing importance of AI in emerging data center workloads,” he wrote, referring to the task of developing AI processes. “Nvidia’s first mover advantage in AI training workloads and software leadership should, in our view, position Nvidia to be a primary beneficiary of AI related market expansion.”
Roy expects the company to reveal details about its plans for future products either at the CES trade show next week or at the company’s own GPU Technology Conference in March. That information could give a boost to the company’s shares, he said.
The Benchmark analyst noted that the stock is trading at about 32 times the $7.31 in earnings per share he expects Nvidia to achieve in fiscal 2020—a little below the 33.5 times forward EPS the stock has averaged over five years. The valuation peaked at more than 50 times in 2017, he said.
“As the data center segment improves, which should also drive margin expansion, we expect NVDA’s multiple to expand,” he wrote.
The stock was up 1.1% to $234.96 on Friday afternoon.
Write to Eric J. Savitz at eric.savitz@barrons.com
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January 01, 2020 at 02:33AM
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Buy Nvidia Stock: A Rebound in Demand Is Coming, Analyst Says - Barron's
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