Is Nvidia worth US$418 per share?

Nvidia’s market cap continues to grow

US semiconductor company Nvidia continues to hit new heights this week, after having surpassed Intel as the most valuable US chip maker last week.

On Tuesday 14 July 2020, the stock gained 3.4% throughout the session to eventually close at an all-time high price of US$417.63 per share.

IG’s market analysis show that ‘buys’ formed 72% of all trades on the Nvidia counter on Tuesday. In terms of outlook, 86% of IG client accounts with open positions in this market expect the price to rise, while 14% of clients with open positions anticipate a price decline.

Additionally, the stock has an average ‘buy’ rating from 40 brokers, based on Reuters data. Eleven have rated the stock a ‘strong buy’, 19 rated it a ‘buy’, eight on ‘hold’ and just two touted it as a ‘sell’.

What’s the catalyst behind Nvidia’s current bullishness?

Last Wednesday 08 July, Nvidia overtook Intel to become the largest semiconductor firm in the US by market capitalisation, and the third largest in the world – behind Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung, after share price rose past the US$400 mark.

As of this week, Nvidia’s market cap stands at US$255 billion, while Intel’s market cap last touched US$250 billion.

Analysts say the stock’s sharp rise in the last one week can be attributed to two main things – solid fundamentals and a strong outlook.

Despite disruptions caused by the Covid-19 pandemic, the company was able to post strong revenue and earnings performance in the first quarter of its 2021 financial year. The company’s adjusted revenues of US$3.08 billion, for instance, outdid the Zacks Equity Research’s consensus estimate by 2.8% and rose 38.7% year-on-year.

Furthermore, non-GAAP earnings at US$1.80 per share also burgeoned 104.5% year-on-year while also beating analyst predictions by 6.5%.

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Growth opportunities provided by Nvidia’s expanding data centre and gaming business segments, are also proving to be major catalysts of the company’s latest share price rally.

Data centre revenue grew to approximately US$3 billion in the 2020 fiscal year, up from US$317 million in 2015. With more businesses moving to cloud solutions, demand for data centres – which in turn is driving demand for graphics processing units (GPUs) are expected to increase even more.

Additionally, gaming revenue also reached US$5.52 billion in fiscal 2020, as compared to 2015’s revenue of US$2.06 billion.

Where do analysts see Nvidia’s share price heading next?

In light of the above, the stock’s outlook currently skews upward.

Last month, Mizuho Securities USA’s equity researchers reiterated their share price target for Nvidia at US$400 a share on a ‘buy’ rating.

Their share price case for Nvidia is predicated on strong GPU demand, as well as an expectation for a strong second half of fiscal 2021 thanks to new product launches. Meanwhile, they are also feeling positive about the stock thanks to its continued strong position within the gaming and artificial intelligence (data center) positions.

Meanwhile Cowen analyst Matthew Ramsay raised his Nvidia share price prediction to US$475 from US$410, while keeping his rating unchanged on ‘outperform’.

On the flipside, Deustsche Bank analysts were more conservative in their estimates, giving the Nvidia shares a price target of US$315 in a 23 June 2020 report.

While the analysts had cited Nvidia’s partnership with Mercedes Benz to deliver software-defined vehicles by 2024 as a ‘clear long-term positive’, they ‘do not expect a significant impact on the company’s share price until greater evidence of secular growth in this segment emerges’.

Another point worth noting is that Nvidia stocks currently have a price-to-earnings (P/E) ratio of 77.58, above its five-year average of 41.08. Comparatively, Intel has a P/E ratio of 11.43 and a five-year average of 14.95.

Do look out for: Nvidia's Q2 earnings for fiscal 2021, scheduled for release on 13 August 2020

How to trade Nvidia stocks with IG

Are you feeling bullish or bearish on Nvidia’s share price? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

• Create a live or demo IG Trading Account, or log in to your existing account
• Enter <NVIDIA Corp> in the search bar and select the instrument
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• Confirm the trade