Monday, May 16, 2016

Analysts React To NVIDIA's First Quarter Report (NVDA)

As noted in Sunday's "NVIDIA: A $2 Billion Chip to Accelerate Artificial Intelligence (NVDA)":
First a heads-up. The technical trading gurus at Investor's Business Daily are saying take profits after Friday's big move, now 20% above their buy point. I don't think so but it all depends on your time frame.

And whether you have the discipline to buy back in should the stock not pull back.
(see links below for some of the things driving the stock)

On the other hand it's not like the stock is unknown and there are hordes of naïfs who have yet to discover it. NVDA was the fourth-best performer on NASDAQ in 2015 and through Friday is up 95% in 52 weeks and 60% since the overall market bottomed on Feb. 11....
From Barron's Tech Trader Daily after-the-close Friday:
Nvidia Surges 14% to All-Time High: Street Dazzled by ‘Secular’ Opportunities
Shares of graphics chip titans Nvidia (NVDA) today closed up $5.41, over 15%, at $40.98, extending last night’s after-hours gains after the company yesterday reported fiscal Q1 revenue and profit that topped expectations, and forecast this quarter higher as well. This is a new all-time high close, with the high for the day having been $41, according to Dow Jones data gurus.
The stock is up 89% in the past 52 weeks.

In a phone call last night following the report, I asked Jen-Hsun Huang, Nvidia’s chief, how he felt about the chip cycle in GPUs this year, as Nvidia’s latest breakthrough, “Pascal” goes up against that the next generation from Advanced Micro Devices (AMD), called “Polaris.”

Huang didn’t utter AMD’s name, instead answering me by staying, “Our approach is just very different from other companies. The difference between us and anyone is scale. Our scale is so much higher at this point, that I expect us to build better GPUs, at a higher level of innovation, than anyone out there.”

He added, “just the scale of our engineering is higher than anyone’s, it’s quite unique.”

(On a side note, I asked Huang about a point raised yesterday by Sterne Agee CRT‘s Doug Freedman, who wondered why the first version of Pascal out of the chute, the “GTX1080″ gaming card, doesn’t use the most advanced memory, something called “HBM.” Huang said analysts are “just wrong” in thinking it might. He said the memory that the ’1080 uses, “GDDR5X,” is “perfectly suited” to the gaming needs of the card. But a forthcoming high-end server- and data center-class chip, a variant of its “Tesla” processor, will use “HBM2,” the newer flavor of HBM, he said, as expected.)

The stock has gotten two upgrades today, that I can see, from Roth Capital‘s Brian Alger, who raises his rating to Buy from Hold, and from Topeka Capital Markets‘s Suji de Silva, who raises his rating to Buy from Neutral.

Topeka’s De Silva, hiking his price targeting to $44 from $36, writes that the company is “poised to benefit from secular growth opportunities across all four key platforms,” referring to the company’s own breakdown of its business into “data center,” “auto,” “gaming” and “professional.” (See yesterday’s supplementary data from the company.)

These opportunities are “too compelling to ignore,” writes De Silva:

We are impressed by the steady revenue progress across the Company’s four target platforms. In gaming, we believe the Pascal architecture incorporates flexibility for evolving gaming and advanced display technology, including VR, that can drive both product cycle growth and mix uplift. In data center, we expect increasing attach opportunity for a high-end and low power GPU in machine learning and high-performance computing servers, implying a meaningful addressable market for increasingly mainstream machine learning applications. We believe the Company has enough momentum in automotive to also grow this segment steadily, with early infotainment traction rapidly morphing into support of adaptive and autonomous driving functions. Lastly, we believe the headwind of PC OEM attach rates and risk of IP revenue falloff are largely embedded, and represent lower relative risk to shareholders. We also expect expanding gross margin and operating leverage, especially with increasing sale of software-rich platform products. We are raising our price target from $36 to $44 and upgrading NVDA from Hold to Buy.

Roth’s Alger, raising his price target to $40 from $34.50, writes that Nvidia’s “found its next vector” in machine learning, and that it deserves a higher stock multiple:

The Datacenter segment registered the most significant surprise, growing $46 million (47%) Q/Q. Datacenter growth was largely driven by deep- learning adoption by cloud operators (IBM, Facebook, Microsoft, Amazon, Alibaba, Baidu, and Twitter), indicating to us that NVDA has found its next big growth vector. Consequently, we believe NVDA should be rewarded with a higher multiple and thus we are raising our estimates, target and rating.

Alger explains his valuation:

Our target price of $40 is 19.7x our FY17 Non-GAAP EPS estimate of $2.03. We believe that a ~20x target P/E is appropriate for a innovative growth company such as NVDA, which we expect to be outpacing its semiconductor peers for some time to come. We would note that expiration of the license agreement with Intel (INTC-Buy) in FQ1:18 is expected to pause NVDA’s EPS growth, however we expect margin expansion and EPS growth to resume in FY 19 and beyond. Additionally, strong cash flow and a commitment to returning cash to shareholders through buy backs and dividends add value to this clear sector-leading enterprise, in our opinion.
Elsewhere on the Street, price targets and estimates are rising:...MORE