It’s a good thing that Netflix, Inc. (NASDAQ:NFLX), which recently crushed its earnings report, is doing so well in terms of stock performance. Otherwise, an argument can be made that Nvidia Corporation (NASDAQ:NVDA) (which, admittedly, I was wrong about) is now more deserving of the “N” spot in the monicker “FANG.”
NVDA stock closed Friday at $113.62, down 2.37% and losing almost 1% last week. On Jan. 24, I argued that Nvidia, which has posted gains of 322% over the past year, had peaked.
My argument was simple: There’s no way the company could duplicate its 2016 success, especially when Nvidia would enter 2017 facing much tougher year-over-year comparisons. Last week, however, the company tossed that argument out the window.
The semiconductor company not only crushed Wall Street’s fourth-quarter estimates on almost every metric, but Nvidia also raised full-year guidance. Plus, although NVDA stock has yet to respond to the solid earnings report, this seems more like a case of growth fatigue.
In other words, Nvidia stock has become a victim of its own success, and investors have become gun-shy. But for new investors, however, it’s not too late to buy — even after a 72% return over the past six months.
NVDA Stock Appears Strong
In the three months that ended in December, Nvidia reported revenue of $2.17 billion, rising 55% year-over-year from $1.40 billion in the fourth quarter of 2016. Meanwhile, management reported adjusted EPS of $1.13, crushing the 83 cents per share analysts were looking for. As for guidance, Nvidia expects first-quarter revenue of $1.9 billion, higher than consensus estimates of $1.87 billion.
One would have to be a complete cynic to find anything wrong with these numbers.
Nvidia, which entered the final quarter of 2016 with a lot to prove, delivered when and where it needed to. Several analysts were forced to respond, including Mizuho Securities analyst Vijay Rakesh, who has a “Buy” rating and has since raised his price target on NVDA stock from $115 to $130. Likewise, Mitch Steves, an analysts with RBC Capital, increased his price target from $124 to $130, while maintaining his “Outperform” rating.
In both price target increases, Nvidia’s strong data center performance was the main focus from the analysts. Datacenter revenue surged a whopping 23% quarter over quarter, while skyrocketing 205% year over year. This puts Nvidia right in the crosshairs of Intel Corporation (NASDAQ:INTC), which has made datacenter a key part of its growth.
Bottom Line for NVDA Stock
To be fair, not every analyst was impressed with Nvidia. Stifel’s Kevin Cassidy, despite being severely underwater with his $76 target, reiterated his “Hold” rating, but was forced to raise that target to $90, suggesting potential declines of 21%.
He’s been wrong over the past year, so take that target with a grain of salt.
Admittedly, though, with a 2018 forward price-to-earnings ratio of 41, Nvidia is no bargain, but momentum stories like these rarely are. And, until Nvidia shows meaningful signs of slowing down, I expect NVDA stock to reach $130-$135, delivering 15%-20% returns in 2017.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
