The broader market’s rally in 2017 has primarily been driven by mega-cap tech companies — in particular, the FANGs as well as chip stocks. However, last Friday, Goldman Sachs triggered a broad selloff in tech stocks, and a bear-vs-bull case in Nvidia Corporation (NASDAQ:NVDA) was the catalyst critics needed to incite panic that the market had gotten overheated. NVDA stock has now bled by about 8% in the past three days.
But investors who have long-term horizons — say, 12 to 18 months — have been given a solid buying opportunity to own Nvidia shares. I believe the stock is poised to reach $180, if not by the end of the year, certainly sometime in the first quarter of 2018.
Since March 6, NVDA stock has skyrocketed have risen as much as mush as 72%, climbing from $97.67 to Friday’s all-time high of $168.50. It was then — on March 6 — I told you Nvidia stock has bottomed. As it stands, that prediction, as well as one on May 4 that said shares would reach $130, have proven correct.
The Bull Case for Nvidia
Thanks to the company’s breathtaking first-quarter earnings results last month, NVDA stock has brought in tons of new buyers, while securing multiple new upgrades from prominent Wall Street analysts. In a research note issued to clients Friday, Atif Malik, analyst at Citigroup, laid out a scenario where he sees Nvidia shares reaching $300 in the next couple of years.
From Friday’s close of $149.60, that target assumed additional premiums of 100%.
“The company is in the early stages of transitioning from a PC graphics chipmaker to a leader in artificial intelligence (AI), which could drive future growth,” the analyst contends. Malik argued that at current levels, Wall Street is still not factoring the continued growth in datacenter sales Nvidia could still capture.
And when combined with the opportunity in the automotive market, where NVDA chips are at the center of autonomous driving technology, not to mention the impact AI, NVDA’s addressable market is massive.
The analysts’ bull case for the company assumes NVDA will — at some point in the near future — achieve some $24 billion in revenue, while delivering $8.50 in earnings per share. This compares to fiscal 2017 estimates of $3.08 per share and $8.25 billion in revenue.
In other words, Malik expects Nvidia to triple its revenue, while more than doubling its profits. On the news, NVDA stock shot up to $168.50 Friday … but gave up all of those gains to end the day down 6.5%.
Notably, even with Friday’s decline, Nvidia still ended the week up more than 4%.
The Bear Case for Nvidia
While Nvidia does have a sizable lead over the likes of Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC), critics like Citron Research’s Andrew Left believes the market is ignoring other competitors such as Alphabet Inc (NASDAQ:GOOGL) subsidiary Google, which is reportedly working on its own AI chips.
CEO Sundar Pichai revealed the new chip and service last month during his keynote at Google I/O, the company’s annual developer conference.
Dubbed the Tensor Processing Unit (TPU) or the Cloud TPU, Google’s new chip can be used to train neural network and is available through a dedicated cloud service. The chips perform “computationally intensive” tasks, such as voice search and image processing, and reportedly beats Intel and Nvidia chips by as much as 15 times to 30 times.
Left raised these competitive points during an appearance on CNBC Friday, while referring to NVDA stock as a “casino.”
Bottom Line for NVDA Stock
While Google entry into the space could present some near-term disruption, Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) have offered already GPU processing via their own cloud services. This hasn’t rattled Nvidia’s position, given the strong guidance it just released.
Indeed, while the forward P/E at 42 suggest NVDA stock is no longer in the bargain bin, there’s still a strong money-making business being created.
And with gross margins still rising, combined with growth in datacenter, automotive and gaming, Nvidia stock should reach $180 by year’s end.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
