Nvidia will surge 24% and become the first $500 billion semiconductor company as processor dominance widens, Bank of America says

Rick Wilking/ReutersJensen Huang, CEO of Nvidia, shows the Drive Pegasus robotaxi AI computer at his keynote address at CES in Las Vegas, Nevada, U.S. January 7, 2018.
  • Nvidia will become the first $US500 billion semiconductor stock as its data centre business ramps up and gaming sales surge, Bank of America analysts said Thursday.
  • Analysts led by Vivek Arya boosted their price target for Nvidia shares to $US600 from $US520, implying a 24% rally from Wednesday’s close.
  • “All growth roads” lead to the company reaching the valuation threshold and capitalising on healthy tech trends, the team said.
  • Nvidia holds an “unassailable hardware/software/developer lead in some of the largest and fastest growing markets,” they added.
  • Watch Nvidia trade live here.

Blockbuster second-quarter earnings set the stage for the Nvidia to become the first-ever $US500 billion chipmaker, Bank of America analysts said Wednesday.

The team led by Vivek Arya lifted their price target for the semiconductor company’s shares to $US600 from $US520 in a note, implying 24% upside from Wednesday’s close. Bank of America also reiterated its “buy” rating on the stock and praised the company’s robust financials.

Nvidia reported better-than-expected sales and earnings on Wednesday afternoon, and its data centre unit outperformed its gaming arm for the first time. The company also guided for a strong second half of the year on gaming sales growth and continued data-centre strength.

“All growth roads” lead to Nvidia reaching a half-trillion-dollar valuation, the analysts said. The company’s free cash flow generation of 38% is “best-in-class” for all of tech, and its upcoming Ampere gaming chips set it up for strong momentum, they added. The team raised its 2020, 2021, and 2022 Nvidia profit forecasts by 10%, 14%, and 11%, respectively.

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“Bigger picture, we believe NVDA has an unassailable hardware/software/developer lead in some of the largest and fastest growing markets in semis/tech,” they wrote.

Nvidia only gained as much as 2% in Thursday trading after posting early losses amid a wave of profit-taking. Shares have more than doubled in 2020 as investors pile into tech bets.

Still, the processor company needs to overcome a handful of obstacles on its climb to a $US500 billion valuation. The data centre sector is a “lumpy” one where volatile inventory build and digestion can quickly decelerate growth, the analysts said. US-China trade tensions could strike at the company’s international sales. Disruptive merger and acquisition activity could also freeze the company’s winning streak, they said.

Nvidia traded at $US488.92 as of 3:40 p.m. ET Thursday.

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