Why Nvidia Corporation (NVDA) Stock Can Still Rally to $130

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It's a good thing that Netflix, Inc. (NASDAQ: NFLX ), which recently crushed its earnings report, is doing so well in terms of stock performance. Otherwise, an argument can be made that Nvidia Corporation (NASDAQ: NVDA ) (which, admittedly, I was wrong about ) is now more deserving of the "N" spot in the monicker "FANG."

How to Trade Nvidia Corporation (NVDA) Stock Before Earnings

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NVDA stock closed Friday at $113.62, down 2.37% and losing almost 1% last week. On Jan. 24, I argued that Nvidia, which has posted gains of 322% over the past year, had peaked.

My argument was simple: There's no way the company could duplicate its 2016 success, especially when Nvidia would enter 2017 facing much tougher year-over-year comparisons. Last week, however, the company tossed that argument out the window.

The semiconductor company not only crushed Wall Street's fourth-quarter estimates on almost every metric, but Nvidia also raised full-year guidance. Plus, although NVDA stock has yet to respond to the solid earnings report, this seems more like a case of growth fatigue.

In other words, Nvidia stock has become a victim of its own success, and investors have become gun-shy. But for new investors, however, it's not too late to buy - even after a 72% return over the past six months.

NVDA Stock Appears Strong

In the three months that ended in December, Nvidia reported revenue of $2.17 billion, rising 55% year-over-year from $1.40 billion in the fourth quarter of 2016. Meanwhile, management reported adjusted EPS of $1.13, crushing the 83 cents per share analysts were looking for. As for guidance, Nvidia expects first-quarter revenue of $1.9 billion, higher than consensus estimates of $1.87 billion.

One would have to be a complete cynic to find anything wrong with these numbers.

Nvidia, which entered the final quarter of 2016 with a lot to prove, delivered when and where it needed to. Several analysts were forced to respond, including Mizuho Securities analyst Vijay Rakesh, who has a "Buy" rating and has since raised his price target on NVDA stock from $115 to $130. Likewise, Mitch Steves, an analysts with RBC Capital, increased his price target from $124 to $130, while maintaining his "Outperform" rating.

In both price target increases, Nvidia's strong data center performance was the main focus from the analysts. Datacenter revenue surged a whopping 23% quarter over quarter, while skyrocketing 205% year over year. This puts Nvidia right in the crosshairs of Intel Corporation (NASDAQ: INTC ), which has made datacenter a key part of its growth.

Bottom Line for NVDA Stock

To be fair, not every analyst was impressed with Nvidia. Stifel's Kevin Cassidy, despite being severely underwater with his $76 target, reiterated his "Hold" rating, but was forced to raise that target to $90, suggesting potential declines of 21%.

He's been wrong over the past year, so take that target with a grain of salt.

Admittedly, though, with a 2018 forward price-to-earnings ratio of 41, Nvidia is no bargain, but momentum stories like these rarely are. And, until Nvidia shows meaningful signs of slowing down, I expect NVDA stock to reach $130-$135, delivering 15%-20% returns in 2017.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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