Roth Upgrades NVIDIA To Buy, Encouraged By 'Deep Learning' Growth

NVIDIA Corporation NVDA reported excellent F1Q17 results, with both top and bottom line ahead of expectations. Roth Capital Partners’ Brian Alger upgraded the rating for the company from Neutral to Buy, while raising the price target from $34.50 to $40. The analyst commented that Deep Learning was becoming a meaningful growth driver.

Performance And Expectations

Nvidia’s 1Q beat was driven by the performance of the Datacenter segment, which grew 47 percent q/q to $46 million. “Datacenter growth was largely driven by deep learning adoption by cloud operators (IBM, Facebook, Microsoft, Amazon, Alibaba, Baidu, and Twitter), indicating to us that NVDA has found its next big growth vector,” analyst Brian Alger wrote.

Nvidia announced its June quarter guidance with revenue of ~$1.35B, non-GAAP gross margin of 58 percent, operating expenses of $445 million, and a 20 percent tax rate. These projections, when combined with a 12 million share-count reduction via buybacks in FQ1, take the GAAP and non-GAAP EPS estimates for F2Q17 from $0.35 to $0.38 and from $0.46 to $0.49, respectively, Alger mentioned.

Share Price Upside

“Given the consistent performance and cost discipline, and the numerous large growth opportunities, we believe NVDA should garner a premium multiple. Already, NVDA has been a standout among its semiconductor peers, however with the massive potential of deep learning beginning to take hold, we expect further multiple expansion,” the analyst wrote.