Boutique Research Firm Upgrades Nvidia, Says AI, Ray Tracing Will Drive Demand For Chipmaker

After several years of major market outperformance, semiconductor giant NVIDIA Corporation NVDA has traded mostly in-line with the market so far in 2019.

On Thursday, one analyst said investors can expect Nvidia to make another run higher in the near future.

The Analyst

Cascend analyst Eric Ross upgraded Nvidia from Hold to Buy with a $190 price target.

The Thesis

Nvidia’s inference technology coupled with artificial intelligence spending by cloud providers will create a perfect storm of demand for the chipmaker, Ross said in a Thursday upgrade note. (See his track record here.) 

Unfortunately, hese trends will likely not have a significant impact on Nvidia’s revenue numbers until the fourth quarter of 2019, Ross said — but added that investors can expect better visibility and positive commentary from management in the next two quarters.

The new Radeon 5700 and 5700 XT GPU releases from Advanced Micro Devices, Inc. AMD will likely eat into Nvidia’s gaming GPU sales, the analyst said. 

Despite the near-term headwinds, Ross said Nvidia’s gaming business should get a huge boost from ray tracing in the years ahead.

“Ray tracing may not matter much now (as few games support it), but when the leading games use it it will all of a sudden become important." 

Nvidia is at least one generation ahead of AMD in ray tracing tech, Ross said. 

In the AI space, the analyst said CUDA is the gold standard among engineers — and AMD doesn’t have an answer.

Cascend had been bearish on Nvidia since May 2018 due to concerns over a breakdown in cryptocurrency mining demand. Now that the crypto bubble has burst, Ross said investors have a chance to safely enter one of the best growth stories in the hyperscale data center space.

Price Action

Nvidia shares were trading higher by 3.78% at $166.07 at the time of publication Thursday. 

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Photo courtesy of Nvidia.