Nvidia's recently approved acquisition of Mellanox is poised to push earnings higher, according to an analyst.
Shares of Nvidia (NVDA) - Get Report rose 3.2% on Monday to $322.37, a record high, after Needham analyst Rajvindra S. Gill raised his price target for its shares to $360, writing that the deal will be "highly accretive."
Gill pointed to strong revenue growth at Mellanox, which sells computer networking products. Its revenue for the first quarter grew 41% year over year to $428.7 million. Gill estimates that Mellanox will add $0.95 of incremental earnings to Needham's estimates for fiscal 2022.
Nvidia announced plans to buy Mellanox for $6.9 billion in March 2019, but a lengthy regulatory review delayed the deal's closure until recently.
Beyond Mellanox, Nvidia will also benefit from a couple of other trends underway, wrote Gill.
"We expect Gaming upside driven by the stay-at-home economy, coupled with growing RTX adoption in leading games and strong Nintendo Switch sales: In F4Q20, Gaming formed 43% of total sales. Of the 43% sales, we estimate that ~5% came from sales of Nintendo Switch (NVDA generates $50 per unit)," he wrote.
Sales of discrete GPU units also likely accelerated in April as more people stayed at home, according to Gill, while its data center unit, which is Nvidia's largest growth driver, will benefit from increased cloud demand.
Other analysts have issued similarly bullish comments on Nvidia in recent weeks, writing that Mellanox will serve as an immediate boost to Nvidia's earnings.
The deal should improve NVIDIA's opportunities in data center and high performance compute by allowing it to optimize solutions across both compute (NVDA) and network (Mellanox) stacks," wrote Weston Twigg of Keybank Capital Markets in a recent note.
Nvidia is expected to report its full March quarter earnings on May 21 after the close of trading.