Why BofA Just Raised Its Price Target on Nvidia

Optimism is reaching a new high around chipmaker Nvidia.

Nvidia stock gained 5.28% on October 15 and closed at $196.37. The stock jumped to its 11-month high after Bank of America (or BofA) raised its price target. BofA reiterated a “buy” rating on Nvidia stock and raised its price target to $250 from $225.

Its new price target is 27.3% higher than its current level.

BofA has a bullish stance on Nvidia and thinks the company is “in prime position to leverage its portfolio of hardware, software and developer ecosystem.” As per BofA analyst Vivek Arya, Nvidia could drive significant revenues and earnings in the next few years.

Currently, the analyst expects the stock’s weakness to continue for the remainder of 2019. Weak cloud spending, muted data center sales, and sluggish gaming revenue will remain Nvidia’s near-term headwinds.

Arya, however, noted that Nvidia’s high-margin Data Center segment will benefit from growing AI needs in the coming years. There’s high demand for AI chips in supercomputers, smartphones, cloud services, and data centers. Nvidia is expected to benefit from natural language processing AI, according to Arya.

Arya is also optimistic about Nvidia’s growing focus on high-performance 7 nm (nanometer) manufacturing technology. Ray-tracing technology is also expected to boost the company’s gaming revenue. As per BofA, the Gaming segment will drive 19% of the company’s total revenue and 39% of its earnings growth in 2020.

Arya expects the company’s earnings growth to double to $11 per share in the next three years. The analyst also expects its earnings growth to triple in the next five years and reach around $15 per share driven by the factors mentioned above.

Analysts’ Recommendations

Among the 39 analysts covering Nvidia stock, 27 have “buy” ratings—up from 26 last month. About nine analysts have “hold” ratings on the stock—down from ten last month. Three analysts have “sell” ratings—unchanged from the previous month. Currently, analysts have given Nvidia stock a 12-month target price of $193.10. The average target price is at a 3.9% premium to the stock’s current price. The median target was $192.00 on the same date.

Like BofA, many analysts at RBC Capital, Evercore ISI, SunTrust Robinson Humphrey, and Goldman also have bullish stances on Nvidia. SunTrust analyst William Stein expects positive demand trends in the stock and forecasts higher profitability ahead. Goldman Sachs analyst Toshiya Hari also remains optimistic about Nvidia stock.

Full story at Market Realist

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