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.