Nvidia's Acquisition of Mellanox Poised to Boost Earnings Long-Term, Say Analysts

The deal closed on Monday after a lengthy regulatory review.
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Nvidia's acquisition of Mellanox, which closed on Monday, will give the company's earnings and revenue a boost in future quarters according to analysts. 

Morgan Stanley raised its price target for Nvidia from $268 to $282 on Tuesday, with analyst Joseph Moore writing that Mellanox will bolster Nvidia's data center footprint and revenues in the coming years. Shares of Nvidia  (NVDA) - Get Report fell 0.66% on Tuesday to $294.91. 

 "We are raising CY21 non-GAAP EPS by 8%, slightly more than our original accretion estimates given recent strength in Mellanox business trends. We like the deal," Moore wrote. Morgan Stanley maintains an Overweight rating on Nvidia's stock. 

Weston Twigg of Keybank Capital Markets issued similarly bullish comments on the Mellanox deal this week, writing that it represents a "long-term positive for the company as it continues to expand its data center and HPC footprints." 

"Networking leader Mellanox adds incremental opportunities for NVDA. 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," he explained.      

Twigg forecast that Mellanox will add $1.7 billion to Nvidia's overall revenue in fiscal 2022, the first full fiscal year after the deal's close. KeyBanc maintains a price target of $289.59 and Sector Weight rating on Nvidia shares. 

Nvidia announced plans to buy Mellanox, which builds computer networking products, for $6.9 billion in March 2019, but a lengthy regulatory review delayed the deal's closure until now. 

Nvidia stock has well outperformed the market this year, with shares gaining about 22% amid losses across major market indexes. 

Nvidia is expected to report its full March quarter earnings on May 21 after the close of trading.