Nvidia Corporation (NASDAQ:NVDA) is set to report second-quarter earnings after the bell on Thursday, and that’s where all the attention has been. Will Nvidia top expectations again? Or are results set to disappoint? Will NVDA stock explode higher? Or will it give up all its recent gains?
The truth is that the quarter was probably pretty good. Competitor Advanced Micro Devices, Inc. (NASDAQ:AMD) reported a blowout quarter, and AMD didn’t release any new high-end, deep-learning or automotive GPUs in the quarter.
But NVDA did. That likely means Nvidia had a markedly better quarter than AMD. The interpretation here is that NVDA’s results will likely be stellar.
And while that is important for keeping the stock afloat in the near-term, it really doesn’t affect the long-term investment thesis. NVDA stock is exposed to multiple secular growth markets that have very, very long runways. There will be near-term noise in those markets, but demand overall will remain robust into the foreseeable future.
As such, regardless of quarterly earnings noise, NVDA is a stock investors should own in today’s increasingly AI-immersed world.
The Street Loves Nvidia
I am not alone in my bullishness on NVDA stock into the remainder of the year. In fact, analysts have come out in growing numbers over the past month or so to tout NVDA stock’s growth potential.
At the end of June, Mizuho Securities maintained their “buy” rating on NVDA stock while pushing the price target to $170 (from $145 previously).
Mizuho analyst Vijay Rakesh sees pricing in the GPU market stabilizing. He likes NVDA’s growth potential in the gaming market in 2H17, as he believes estimates are conservative. Rakesh thinks the growth drivers in the back half of the year will be an uptick in cryptocurrency mining and new auto wins.
On July 12, SunTrust Robinson upgraded NVDA stock to “buy” while upping the price target to $177. Analyst William Stein and team point to the data-center, gaming and automotive markets as secular growth pieces of NVDA’s long-term narrative. They also think that NVDA has huge long-term potential in AI.
On July 13, RBC Capital Markets reiterated NVDA stock at “outperform” while sticking to their $175 price target. RBC’s bull thesis rests on improvements in the global server market. A TrendForce report in early July showed that global server shipments are trending up about 10% versus the first quarter of 2017. Moreover, DRAMeXchange sees this growth continuing. They estimate that global server shipments will be up 10% in the second half of 2017 versus the first half of 2017.
RBC thinks this growth is a result of tech giant demand ramp. That includes the likes of Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB). If the demand ramp is from those big players, then NVDA is a natural winner.
On July 24, Cannacord Genuity maintained their “buy” rating on NVDA stock while upping the price target to $180 (from $155 previously). Analyst Matthew Ramsay and team are bullish on GPU computing, seeing it as a secular growth market with good runway left. They also acknowledge intensifying competition in the GPU market from AMD and Intel Corporation (NASDAQ:INTC), but say that any market share lost in GPU computing will be offset by market share gains in the data-center and automotive markets.
Bottom Line on NVDA Stock
Overall, the bullish sentiment is building into NVDA earnings. Does that make the stock risky? Yes, and I don’t think it’s a trade because there is considerable downside risk in the near term. Earnings could miss. NVDA stock, which has rallied 17% over the past month and 66% over the past three months, could crater.
That likely won’t happen, but it is a possibility. Regardless, the near-term noise does not affect the bullish long-term outlook. Demand is and will remain robust in NVDA’s secular growth markets. The valuation may be rich, but what NVDA lacks in a compelling valuation, it makes up for in long-term growth drivers.
All in all, NVDA is a must-own stock in today’s AI-immersed world.
As of this writing, Luke Lango was long NVDA, FB, and AMZN.
