Nvidia's stock is 'still too cheap to ignore,' one analyst says, while cheering the long-term AI narrative
While investors found reasons to nitpick Nvidia Corp.'s latest results, analysts saw a buying opportunity in the stock's post-earnings weakness.
The chief concerns coming out of Nvidia's earnings report Wednesday night were the magnitude of the company's guidance beat and the prospect of margin disappointment next quarter. Though Nvidia's outlook for $32.5 billion in fiscal third-quarter revenue exceeded the $31.7 billion consensus view, the company has delivered more guidance upside in quarters past.
Meanwhile, Cantor Fitzgerald analyst C.J. Muse noted that Nvidia maintained its gross-margin outlook for the full fiscal year, but in doing so, implicitly suggested a margin miss for the fiscal fourth quarter relative to consensus expectations. The outlook implies about 72% to 73% gross margins for that quarter, while analysts had been looking for 75.6% on average.
Nvidia shares are down about 2% in morning trading Thursday.
Still, Muse and others encouraged investors to look at the selloff as a buying opportunity.
The gross-margin trend "will be more than made up for with higher [average selling prices] and better top-line growth supporting mid-60% [operating margins] consistently," Muse said.
Further, he and his team "do not see any change to the AI story underpinning" Nvidia, and they called the stock "still too cheap to ignore" given its multiple based on after-hours indications. They rate the stock at overweight with a $175.
Piper Sandler's Harsh Kumar also recommended that investors scoop up Nvidia shares on the pullback.
He noted that Nvidia has had some yield issues with its new Blackwell chip and is changing the mask, though the company expects to see billions of dollars in revenue from the product during the fiscal fourth quarter.
"We feel the small delay due to yield and manufacturing issues might have caused a small level of impact to revenue guidance," he wrote. "On gross margin, Blackwell is a complex new product and the company is more focused on speed and volume of output vs. a fine tuned supply chain which had been previously outlined by management."
He expects that Nvidia's gross margins will "stabilize back to the mid-70s" within two or three quarters. Kumar has an overweight rating and $140 target price on the shares.
BofA's Vivek Arya said that Nvidia's stock was "likely to be volatile" given that the revenue guidance fell short of bullish investor expectations that were above consensus at $33 billion to $35 billion or so. He attributes that potentially to the Blackwell ramp getting moved back by a quarter.
"Despite the quarterly noise, we continue to believe in [Nvidia's] unique growth opportunity, execution and dominant 80%+ share," he wrote.
Arya rates the stock a buy and lifted his price objective to $165 from $150 on Wednesday.
Bernstein's Stacy Rasgon wrote of "enormous, and still early" opportunity in the data-center market as he reiterated his bullish view on the stock as well.
"The one smudge on the report was end-of-year gross margin outlook which does seem down a bit as Blackwell begins its ramp and H200 mix increases," he wrote, with H200 being a product in the current Hopper line.
Rasgon still expects a "very respectable" overall gross margins in the 73% to 74% range, and he and his team "believe next year's margins should overall hold in fine as the platform matures, they settle pricing, optimize their supply chain and gain scale and add more software to the mix."
They think "the narrative remains solid" for Nvidia. Bernstein has an outperform rating on the stock and a new target of $155, up from $130 before the report.