Nvidia (NVDA) shares have been getting crushed recently, but this could be the ultimate buying opportunity, according to Credit Suisse.
The bank initiated coverage of the chipmaker with a Buy rating and $225 price target — a more than 55% move higher from Friday’s closing price of $145 per share.
“While the recent F1Q19 guide was disappointing, we see the reset and ~50% decline in shares over the past 8 weeks as providing an extremely compelling entry point,” analyst John Pitzer said in a note to clients on Monday.
Pitzer stated that while valuation is not cheap, the risk reward is attractive.
One of the main areas Pitzer sees opportunity is Nvidia’s gaming segment. “The gaming segment saw a dramatic reset in the company’s January Q guide as crypto channel inventory sells through and prices normalize; however, in the longer term, the underpinnings of the gaming segment remain largely intact, and the segment provides a sustainable, growing revenue stream … we do view Gaming as a sustainable growth driver in some capacity in both the near and medium term,” he explained.
Furthermore, the rise of esports and social gaming will grow the consumer base as well as revenue, according to Pitzer. “Secular growth drivers, namely increasing graphics requirements for leading-edge PC games, esports penetration, the rise of social gaming, and strong APAC demand support continued growth.” Nvidia currently expects the esports audience to increase by 400 million by 2019, up from 71 million in 2013.
Additionally, Pitzer illustrated the strength in Nvidia’s data center business. “We see continued strength in data center (~26% Rev) … the structural thesis remains intact. Despite the near-term setback, we continue to see an at least 15% [compounded annual growth rate (CAGR)] overall and a 30% CAGR for data center,” Pitzer said.
Autonomous driving also provides long-term opportunity, according to Pitzer. “In the longer term, NVDA is heavily focused on gaining traction in the autonomous driving space. It has established a strong presence here, having built out an impressive platform and established 370+ partnerships, many of which are high profile (e.g., Tesla, Mercedes, Toyota, etc.). We model a 20%+ CAGR for the space through 2020 as revenue growth accelerates,” Pitzer stated.
Last week, the chipmaker reported disappointing earnings and gave weak Q4 guidance which sent the stock plunging. The stock is currently in a bear market, down more than 20% from the all-time high it hit in October.
Nvidia shares have been underperforming both the broader market and the rest of the semiconductor group. The chip giant is down more than 22% this year, while the S&P 500 (^GSPC) is up 1%, and the Semiconductor ETF (SMH) is down only 3% in the same time period.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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