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Nvidia has plenty more running room, analyst sees another 25% upside

Published 2023-08-24, 11:37 a/m
© Reuters.  Nvidia has plenty more running room, analyst sees another 25% upside
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Proactive Investors - NVIDIA Corporation (NASDAQ:NVDA) stock has more room to run according to analysts at California-based stockbroker Wedbush which has raised its price target to $600, up from $490.

Alongside an outperform rating, the new target sees some 25% further upside to the chipmaker’s current price.

It comes after Nvidia’s second-quarter earnings smashed Wall Street’s elevated expectations, with key revenue lines coming in billions of dollars better than forecast.

Soaring demand for AI-powering processors saw group revenue hit $13.51 billion, ahead of forecasts that were only upgraded a matter of months ago.

Wall Street had pencilled expectations of some $11.22 billion of revenue ahead of the results, and that was at the top end of Nvidia’s own guidance.

Such is the rapid growth that Nvidia again upgraded its outlook, setting guidance for the current quarter to $16 billion, up from $12.6 billion.

“NVDA blew investor expectations away again,” Wedbush analyst Matt Bryson said.

“Results not only substantially exceeded our/prior Street consensus estimates, but once again the company's outlook implies Data Center revenues in CQ3 will grow at a faster rate than even the most ambitious forecasts had anticipated.”

Nvidia’s sharp revenue growth is being driven by rampant demand due to the ongoing emergence of AI technologies and a continuing tight supply for high-performance semiconductors.

Two questions now stand out for investors. First, is just how high peak demand can reach and what will that mean for Nvidia’s valuation?

The other, perhaps more significant, question is whether Nvidia has the capacity to keep up with demand?

At Wedbush, analyst Matt Bryson fancies the chipmaker’s chances.

“Nvidia indicated its supply chain is set to ramp production capabilities through 2024/25, with capacity expected to increase sequentially every quarter,” he said.

“And with product lead-times seemingly still extending north of 40 weeks and in some case north of a year (with NVDA suggesting it has beyond a year of visibility) it seems like revenues are positioned to lift from expected FQ3'24 levels through F1H'25, if not beyond that point.”

The analyst added: “we are choosing to assume what we believe will prove conservative growth rates for NVDA's Data Center business (particularly in the near-term), albeit with less variability than NVDA will likely experience in the out quarters (when its visibility wanes).

“Even with these conservative growth assumptions, and margin inputs that if anything also seem pessimistic (flattish GMs despite overall growth being driven by margin-rich data center gains and operating expenses starting to work back towards prior percentage levels) our estimates still increase substantially with our FY'26 EPS lifting to $17.14 (from $12.15) or roughly 40%.”

The stock is up some 235% in 2023 to date and in May the chipmaker reached the upper echelons of market, with its valuation breaking above $1 trillion for the first time.

Read more on Proactive Investors CA

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