Nvidia Shares Rise as Several Analysts Raise Price Targets on Chipmaker

A possible 'inflection point' in data center chip revenue and higher adoption of Nvidia's ray tracing gaming chips are driving earnings estimates higher.
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Nvidia (NVDA) - Get Report shares surged in 2019, but the gains may not be over yet for the chipmaker. 

The stock, which jumped 77% in 2019, were rising 2.3% to $249.96 a share Monday morning as several analysts raised their price targets, including one upgrade. 

Needham analyst Rajvindra Gill upgraded Nvidia to hold from underperform and raised his fiscal year 2021 (calendar year 2020) revenue estimate to $12.4 billion from $11.9 billion. His earnings per share estimate for the year is now $7.15, up from a previous forecast of $6.60. Analysts polled by FactSet are looking for fiscal 2021 EPS of $7.31. 

Gill's upgrade is "following our positive meeting at CES," where management unveiled new products. Nvidia unveiled improvements for its GeForce RTX GPU, which has Ray Tracing capabilities, a key capability for gaming chips. 

"Holiday season is tracking well for gaming; the channel is ready for ray tracing," Gill wrote in his note. "We attribute the gaming segment's (~55% of sales including Switch) performance in part to accelerating adoption of ray tracing games." 

As for data center revenue, the segment has been a sore spot for most chip makers in the past year or so due to oversupply, but Gill wrote that "we think data center will reach an inflection point in fiscal year fourth quarter 2020 and return to year-over-year growth." He said he sees evidence of increased spending from all major hyperscalers. 

Meanwhile, analysts at Evercore ISI raised their price target on Nvidia to $300 from $225, saying the stock is one of their top picks for 2020. And Argus Research analysts raised their price target to $300 from $240, saying the CES event "provided Nvidia an opportunity to highlight rapid adoption of its ray tracing technology."

Nvidia is seen by many on the street to be "fully valued," as Gill put it. The stock trades at 34 times next year's EPS, higher than its average in the past five years of 32. But earnings are expected to grow 30% and 20%, respectively, over the next two years.  

Advanced Micro Devices AMD, which is developing its own ray tracing chips, remains a competitive threat to Nvidia in both gaming and data center segments.

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