With its fingers in the pies of everything from gaming, data center and crypto to auto and the metaverse, Nvidia (NVDA) has seen outstanding success both in real-world performance and from an investing perspective over the past few years.
Following conversations with Nvidia’s CFO, Bank of America analyst Vivek Arya is confident the chip giant will keep on outperforming.
“We continue to believe the company is best positioned to address several of the most important, multi-decade secular growth opportunities with its unique, highly-leverageable accelerated compute platform,” the 5-star analyst said.
Let’s have a look, then, at key takeaways from the talks.
Contrary to the idea that last year’s gaming growth (up by 60% YoY) was mostly down to ASP upside due to the “preference and mix” to higher priced Ampere SKUs, it was fairly split between units and ASPs. Throughout 2021, gaming demand outpaced supply, and while capacity “remains a bottleneck,” the company is making an extra effort to secure supply. In any case, constraints are expected to abate in the year’s latter half.
Arya also notes Nvidia is still “very early in its ray-tracing (RTX) upgrade cycle.” With only roughly 25% of Nvidia gamers having already upgraded, unit and ASP growth should get a further boost from upgrades in 2022. At the same time, the seasonality that usually affects 1H should be limited this year due to “tight supply and broadening of demand from US to China.”
2022 should also see an extension of the “strong” data center momentum in 2H21, with hyperscale customers “scaling” deep learning in AI workloads and continued enterprise recovery and further AI penetration in vertical markets.
While the space is increasingly competitive, the company believes its “unique software platform and developer ecosystem provide it with a competitive advantage that competitors cannot easily replicate.”
Gaming and data center have been the main breadwinners, but Nvidia is extremely well-positioned to ride other secular trends.
The $8 billion auto pipeline should begin to bear fruit in the year’s second half and into 2023, although its impact will mostly be felt from 2024 onwards when the Mercedes software partnership will “ramp.”
And of course, there’s the Omniverse - what the company calls the metaverse for engineers – an opportunity both from a hardware and software standpoint. While 2022 will only see minor adoption, over the long-term this can turn into a “multi-billion $ opportunity.” More details on this could get an airing at this spring’s Analyst Day.
Overall, Arya rates Nvidia stock a Buy, and has a $375 price objective for the shares. The implication for investors? Upside of 36%.
Looking at the consensus breakdown, of the 26 reviews on record, 24 are to Buy and just 2 say Hold, all resulting in a Strong Buy consensus rating. Shares are expected to see 12-month growth ~31%, given the average price target clocks in at $359.17. (See Nvidia stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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