Nvidia Isn't Just a Chip Stock, And Could Soar 30% When Investors Realize That

Dow Jones04-17

Nvidia Corp. is approaching the anniversary of when it surprised Wall Street by trouncing forecast expectations on the heels of robust artificial-intelligence demand, and its stock is up some 220% over the past year.

With that backdrop, it's perhaps hard to fathom that the company could be severely underestimated by investors. But what if it is? Evercore ISI analyst Kirk Materne thinks Wall Street isn't giving Nvidia $(NVDA)$ enough credit for its vast ecosystem, and that's the crux of his new bullish view that implies roughly 30% upside for the stock.

Nvidia isn't just a semiconductor company, from Materne's perspective, as it has an ecosystem of chips, hardware and software that deliver a key advantage - and big revenue potential.

The company's data-center revenues are higher than those of Intel Corp. $(INTC)$ and Advanced Micro Devices Inc. $(AMD)$ because Nvidia "sells boards and boxes vs INTC and AMD selling chips," he wrote. "Furthermore, the price of NVDA's software ecosystem is in part embedded in the price of its systems."

He added that Nvidia bears may be worried that the company is "pricing itself out of the market" with cards that run at roughly 25 times the price of central processing units from Intel and AMD. "We view this as an apples-to-oranges comparison, like comparing a $150 Qualcomm Snapdragon processor to a $1,500 iPhone," Materne wrote.

He initiated coverage of Nvidia shares with an outperform rating and $1,160 target price overnight, writing of his view that every 15 to 20 years witnesses a new "computing era" and that those are "typically dominated by a single vertically integrated ecosystem company."

The company that emerges at the ecosystem player traditionally "captures 80% of the value created during its respective computing era, while others compete for the other 20%," Materne continued.

Nvidia looks to be the dominant player in parallel processing, according to Materne, and the good news for investors is that this era is "only in the beginning phases of generating outsized returns for its investors."

Shares of Nvidia are up 1.6% on Tuesday trading, after declining by more than 2% in each of the past two sessions.

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Comments

  • CIG
    04-17
    CIG
    Can't ignore AMD.
  • GianniTigerSecurity
    04-17
    GianniTigerSecurity
    Well it would all depend on how Nvidia's top management are able to take advantage of being the leader/first mover in the field. We have seen many seasoned big time investors believing in the similar fashion with regards to Tesla as well, to put it into writing " Tesla is not just a EV manufacturing company " That might be true in reality but so far the company- Tesla has not been able to take full advantage of being the first in the EV sector but on the contrary, it is having a tough time living upto the expectations of its early backers. Its shares have been riding wildly up & down with no visible end to it. On top of that, the tough competitions from the legacy car manufacturers having entered into the EV sectors along with other EV manufacturing companies are giving a tough time to
    • JimmyTurner
      Can't wait to see how it all plays out in the long run.
  • Ricochet
    04-17
    Ricochet
    Spot on. NVIDIA has the entire stack and is way ahead of the competition.
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