Analyst: Nvidia Earnings Will Triple In The Next 5 Years

After years of staggering returns, NVIDIA Corporation NVDA has taken a breather in the past year as the global semiconductor market has cooled. But while earnings growth has slumped in recent quarters, one Wall Street analyst said Tuesday investors can expect Nvidia’s EPS to triple over the next five years.

The Analyst

Bank of America analyst Vivek Arya reiterated his Buy rating for Nvidia and raised his price target from $225 to $250.

The Thesis

Arya said Nvidia remains his top large-cap stock pick and artificial intelligence will drive the next phase of Nvidia revenue growth. Natural language processing in particular will require processing capacity more than 100 times that of today’s leading video/image classifying AI machines, Arya said.

Bank of America estimates Nvidia’s data center business, which already accounts for 25% of the company’s revenue and 40% of its growth, is only about 5% penetrating a $60 billion addressable market.

In the near term, a sluggish gaming market, a plateauing cloud spending environment and uncertainty surrounding the trade war could continue to weigh on Nvidia sales. However, Arya said Nvidia’s high-performance 7nm manufacturing technology and the next ray-tracing-based gaming cycle will drive 19% revenue growth and 39% EPS growth for Nvidia in 2020.

“Our bull-case scenario shows pf-EPS doubling in 3yrs to $11/sh, and tripling in 5 years to around $15/sh,” Arya wrote in a note.

Benzinga’s Take

Despite the stock’s hiccup in the past year, very little about Nvidia’s bull thesis has changed. The company is still well-positioned in some of the largest and highest-growth tech markets, and investors need to simply determine just how high of a price they are willing to pay to be a part of it.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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