The so-called ‘king of chips’ has been on red-hot form in 2020. Nvidia’s [NVDA] share price is up 123.79% year-to-date through 17 November and has soared 197.1% from its 52-week low of $180.68 on 18 March. As the company prepares to announce its earnings on 18 November, will Nvidia’s share price surge higher?
As of 17 November’s close, Nvidia’s share price trades 8.86% below its all-time high of $589.07, recorded on 2 September. The stock had leapt to this level following the unveiling of new GeForce gaming GPUs.
As the tech correction began in September, Nvidia’s share price lost 17% between 3 and 8 September before quickly beginning to regain ground. The stock popped on 14 September following news that the company would be acquiring Arm from Softbank  for $40bn. Nvidia’s share price jumped 16% in the week commencing 2 November as global stock markets rallied.
Reaching new heights
The numbers published in the company’s last earnings report suggest that Nvidia’s share price could keep pushing on to new heights. Revenue for the second quarter was up 50% to $3.87bn, surpassing the $3.65bn analysts had expected it to report, according to Refinitiv data.
The gaming division delivered $1.65bn in sales, up 26% from $3.08bn in the second quarter of 2020, as shelter-in-place orders led to more people taking an interest in video gaming. Its data centre segment delivered $1.75bn of the total revenue, a whopping 167% year-over-year increase.
Nvidia's Q2 revenue - a 50% rise
This was the first time in Nvidia’s history that the data centre segment had brought in more revenue than its gaming arm. It was helped by sales from Israeli rival Mellanox, which Nvidia acquired for almost $7bn at the end of April. Mellanox contributed circa 30% of data centre revenue and 14% of total revenue.
For the third quarter of 2021, Nvidia expects to see revenue of $4.4bn — give or take 2% — which would represent a 46% increase year-over-year from the third quarter of 2020 revenue of $3.01bn. The company expects its gaming segment to grow by 25% and its data centre segment’s growth to be in the low to mid-single digits.
According to data from Zacks, analysts have predicted revenue to be in the range of $4.4bn and $4.7bn, with a consensus of $4.42bn. Meanwhile, earnings per share are predicted to be in the range of $2.55 and $2.61 — the consensus of $2.57 would be a 44% increase on the $1.78 per share the company delivered in the third quarter of 2020.
Nvidia's expected Q3 2021 revenue - a 46% YoY rise
Nvidia expects the second half of fiscal 2021 to be a boon for gaming revenue. Sales of its new GeForce RTX 30-series GPUs for desktop gaming, including the 3080, should be boosted by the release of the new PlayStation and Xbox consoles.
Raymond James’ Chris Caso thinks there’s a huge upgrade opportunity, as there are many desktop gamers that are still using 20-series graphic cards.
“Coupled with strong underlying gaming demand driven by COVID-19, we do expect the 3080 to represent a compelling upgrade for consumers and expect that product cycle to drive gaming growth for the next several quarters,” wrote Caso in a note seen by Benzinga. He reiterated an Outperform rating for Nvidia’s share price.
“Coupled with strong underlying gaming demand driven by COVID-19, we do expect the 3080 to represent a compelling upgrade for consumers and expect that product cycle to drive gaming growth for the next several quarters” - Chris Caso
Beyond gaming, Nvidia’s ambition is to become the main supplier of core technologies that power data centres and, in turn, become the chipmaker of choice over Intel [INTC]. The impending purchase of British chip design company Arm will go a long way to solidifying this position and give Nvidia a monopoly on the chip industry. Other companies, including Apple [AAPL], currently licence Arm’s technology to use in their products.
In the most bullish move on Wall Street, Needham’s Rajvindra Gill recently raised his target for Nvidia’s share price from $600 to $700, reiterating a Buy rating.
Gill believes that the acquisition of Arm will present a ubiquitous opportunity in the years to come, given how integral Arm is to nearly every mobile processor in the world. He wrote in a note that there are “trillions of devices that will be connected to the data centre, ranging from smart retail, smart streets, smart robotics, industrial, wearables, and auto”.
There are 37 ratings available for Nvidia as of 16 November according to MarketBeat data, 29 of which are Buy, four Hold and four Sell. The consensus target for Nvidia’s share price is $519.54 — 3.23% lower than its price as of close of trading on 17 November.
|PE ratio (TTM)||98.62|
|Quarterly Revenue Growth (YoY)||49.9%|
Nvidia share price vitals, Yahoo Finance, 18 November 2020