Chip maker Nvidia has invested heavily in artificial intelligence.
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Nvidia has invested heavily in artificial intelligence—in cash and culture—and those expenditures should drive up the stock price, Truist analysts argue.
The Truist team made the upbeat assessment on Monday, two days before Nvidia (ticker: NVDA) is set to post fourth-quarter and fiscal 2022 results. In morning trading, shares were up 2.2%, to $244.80. The S&P 500 was down 0.4% and the Dow Jones Industrial Average was off 0.8%.
In a note, the ream predicted that Nvidia’s strong AI backbone would lead both management and other analysts to increase their earnings forecasts, which in turn would push the share price higher.
The stock had been weighed down by uncertainty before Jan. 25, the day that a Bloomberg report based on unnamed sources said Nvidia had abandoned plans to acquire U.K. chip designer Arm. On Feb. 7, Nvidia confirmed that the deal was off. The deal had faced scrutiny from regulators in the U.S. and abroad. Since the close of trading on Jan. 25, shares are up 9%; for the past 12 months, the gain is 62%.
Nvidia’s culture of innovation, significant outlay for AI software tools and models, and historically strong customer demand make the stock a Buy, according to Truist.
“NVDA continues to distinguish itself as the AI company, owing partly to its high-performance GPUs [graphics processing units] that provide the necessary parallel compute capability,” wrote analyst William Stein, who reiterated his price target of $350.
Nvidia’s AI innovations provide the company with two important things, Stein wrote—leverage over competitors and the opportunity to grow. Also, the investments in other aspects of computing, especially for graphics, solidify Nvidia’s position in the gaming and esports sectors.
All those factors support the company’s structural growth, which justifies its high stock price, he said.
For the past 18 months, Stein said buyers and sellers have talked about increased demand for Nvidia’s AI-enabled products.
“We anticipate the April quarter will likely represent a step-up in revenue forthis end market, and that there is a potential that CY22 accelerates,” Stein said.
The latest feedback from investors solidifies the point that demand is strong, wrote Stein, who models 46% organic growth in the data sector for 2021, and greater than 12% growth in the company’s gaming sector in 2022.
Corrections & Amplifications: Nvidia confirmed that its plans to buy Arm collapsed on Feb. 7. An earlier version of this article incorrectly said the deal had collapsed on Jan. 25.
Write to Logan Moore at [email protected]
