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The Ratings Game: Nvidia analysts hike price targets as data-center story shines

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Nvidia Corp. shares traded slightly higher compared with the broader market Thursday as more than half the analysts who cover the chip maker hiked their price targets following the company’s strong quarter and outlook based upon data-center gains.

Nvidia
NVDA,
+5.70%

shares were up about 1% in early trading, while the PHLX Semiconductor Index
SOX,
+0.77%

declined about 1%, and the S&P 500 index
SPX,
+0.05%

eased 0.1%. See Market Snapshot.

Late Wednesday, Nvidia forecast revenue of $6.66 billion to $6.94 billion, above Wall Street estimates at the time, and said that the “lion’s share” of the $500 million increase coming from data-center sales. That follows new records for total, gaming, and data-center sales that Nvidia reported for the quarter.

What many analysts picked up on is that demand for graphics processing units (GPUs) for cryptocurrency mining didn’t factor that much into the outlook. That came as a relief to analysts, who noted a lower crypto risk compared with 2018 when a fall in cryptocurrency values prompted many miners to sell their gaming card-powered rigs, flooding the market with second-hand cards.

Nvidia broke out sales of its Cryptocurrency Mining Processors, or CMPs, which are intended to divert mining demand away from GPUs made for gamers and not expected to be material in revenue gains.

Of the 41 analysts who cover Nvidia, 34 have buy ratings, five have hold ratings, and two have sell ratings. Of those, 24 analysts hiked their price targets and one lowered theirs, according to FactSet. That resulted in an average price target of $219.23, up from a previous $204.24.

Read: Nvidia earnings top Street view with record data-center, gaming revenue, but supply constraints still a concern

Data-center sales, however, took up much of the attention from analysts.

Bernstein analyst Stacy Rasgon, who has an outperform rating on the stock and raised his price target to a $230 from $180, said that while “the company is having absolutely no trouble continuing to crush gaming,” Nvidia’s data-center story “still feels like it has some room to run.”

“The data-center story is really coming into its own now, with a sizable inflection in the near term and with prospect for the segment to equal, and potentially exceed, gaming in the not-too-distant future,” Rasgon said.

Evercore ISI analyst C.J. Muse, who has an outperform rating and a $250 price target, called data-center sales a “key for the stock.”

“Data Center revenues were guided to accelerate in 3Q off a very strong comp based on strength across hyperscale and vertical customers, training and inference applications, and compute and networking technologies – the democratization of AI workloads continues to be a front and center theme here, and one we see NVDA driving and benefiting from over for the foreseeable future,” Muse said.

Cowen analyst Matthew Ramsay, who has an outperform rating and raised his price target to $220.00 from $176.25, said that the data-center acceleration was “the most important takeaway,” from the earnings call.

“We expect sustainable data-center and gaming product cycles that should drive >50%+ organic growth for the company in F’2022,” Ramsay said.

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $223 from $214, addressed the lower risk of another crypto-mining debacle.

“We think crypto-miners are 1/10th the gaming GPU sales vs 2018,” Lipacis said. “We continue to believe the risk of a crypto-driven gaming bust is low, and expect NVDA’s ecosystem moat and increasing software revenues to lead to additional upside surprises.”

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