Alex Cho
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What's Driving Nvidia Higher?

Nvidia remains one of my better-performing ideas this year. In this article, I’m going to weigh in on Wedbush earnings commentary on Nvidia.

Betsy Van Hees gets more aggressive following the earnings report:

We believe that valuation is no longer looking stretched here as we got the solid beat and raise that we were looking for and we expect the stock to continue to press higher driven by the same trends that drove NVDA’s success in CY:15. We expect NVDA to continue to benefit in CY:16 from (1) pervasive and macro resilient growth in PC gaming, (2) increasing penetration rates and content in auto, and (3) improving product mix from continued growth in high performance GPUs and deployment of GRID bolstered by NVDA’s ongoing commitment to enhance shareholder value through dividends and stock buybacks. Our new 12- month PT of $42 from $38 is based upon about 17x our CY:16 pro forma EPS estimate of $2.01 plus $7.96 of cash per share.

Clearly, analysts are approaching the name cautiously but anticipate the stock to move higher over the next 12-months. Momentum is mostly driven by surprising revenue/earnings strength over Q1’16, and the heightened sentiment pertaining to GPU refresh. Investors were anticipating demand to stagnate for Maxwell generation given the impending launch of Pascal. But with results that were a lot healthier than the consensus and ramping production of upcoming GPUs it’s worth getting antsy around this name.

The strength in PC gaming isn’t at all surprising and continues to buck the trend in generic PC devices. The continued adoption of high-end components and custom built PCs continues. I believe Nvidia will sustain sales growth across PC gaming, server and autonomous driving over the foreseeable timeframe.