Nvidia Shares Jumped Nearly 2% in Morning Trading

Bank of America analyst Vivek Arya had reiterated a Buy rating on Nvidia stock and a Top Pick designation.

Analyst Vivek Arya, who has a buy rating and a $375 price target on Nvidia, notes that the 26% decline year-to-date, including last week's sharp drop, may stem from concerns over its gaming business. Arya postulated that European customers could curb demand due to the Russian invasion of Ukraine, while Chinese customers could be impacted by Covid-related lockdowns.

Lastly, crypto customers could be hurt by declines in the price of Ethereum and the change to proof-of-stake, which does not need graphics cards.

"We flag these headwinds, but argue investors could be underappreciating other supportive trends including: (1) strength in data center, pro-viz and 2H autos ramp," Arya wrote in a note to clients, adding that Hopper-based gaming products and restocking inventory could also help.

If Nvidia (NVDA) were to see a downturn in gaming, that would only impact earnings per share by 7% to 9%, Arya pointed out, assuming a 5% decline quarter-over-quarter in this quarter and a 10% decline next quarter, compared to a previous outlook of growth rates of 3% and 9%.

Secondly, Nvidia may benefit from its newly announced products, including the Hopper line of GPUs, as well as channel refill activity. "Important to note that NVDA’s gaming sales have grown at an average 25% [compound annual growth rate] in every two year period (range 8% CAGR to 45% CAGR), while the scenario above assumes a 6% 2-yr [compound annual growth rate], so well below the historical range," Arya wrote.