Nvidia (NVDA) - Get Report received a price target raise from RBC Capital Markets analyst Mitch Steves just ahead of the company's January quarter earnings report, which is due out Thursday after the close.
The stock rose 2.2% to $257.12 a share Monday morning.
"We raise our estimates on NVDA as we think the January quarter will come in a bit ahead of the high-end of guide due to better than expected gaming and data center demand," Steves wrote in a note on Monday morning.
His new price target of $301, increased from the previous target of $251, represents 17% upside to a stock that has enjoyed a 76% run in the past year. The new price target is also now the highest on Wall Street.
Steves sees not only a higher revenue mix towards the data center, a segment that is rebounding for the entire semiconductor industry, but also an expanding operating margin. He sees the margin getting to 40%, up from the previous quarter's 38%.
For gaming, Steves is now looking for revenue of $1.546 billion, up from a prior forecast of $1.515 billion. Data center revenue moves to $880 million from $830 million. He highlighted some sales risk going forward, however, as believes Nvidia "will remain conservative given potential supply chain disruption in China." Many chip makers have had to close China manufacturing plants because of the coronavirus outbreak.
Steves is looking for January quarter revenue and earnings per share to come in at $3.1 billion and $1.76, ahead of the FactSet consensus estimate of $2.96 billion revenue and $1.66. He also sees April quarter revenue and EPS coming in at $2.96 billion and $1.75, above TheStreet's consensus forecast of $2.854 billion and $1.53.
He also doesn't think future earnings from the recent Mellanox acquisition is priced into the stock, as the deal, Steves thinks, can contribute 75 cents in EPS yearly.
While Steves is indeed upping his forecasts for the next two quarters, much of his price target bump comes as he rolls his valuation forward a year, although he did raise his target earnings multiple on the back of favorable data center trends for the longer-term.
Steves also isn't alone in his optimism on gaming and data center.
"We expect a strong quarter and outlook in both gaming and data center, with perhaps some marginal conservatism in the gaming outlook driven by coronavirus," wrote Morgan Stanley analyst Joseph Moore in a note on Monday. "We have been expecting a strong quarter and outlook in both segments, with multiple data points suggesting strong demand from cloud, as well as fairly strong demand (and lean inventory conditions) for higher end gaming cards."
Moore kept his price target on Nvidia at $259, but said he sees potential upside to the target “if numbers can move higher.”