Nvidia Analyst Says Pandemic Creates More Data Center Demand

The coronavirus pandemic is creating a greater need for NVIDIA Corporation's NVDA chips, according to Needham. 

The Nvidia Analyst

Rajvindra Gill upgraded Nvidia from Hold to Buy with a $270 price target.

The Nvidia Thesis

At this uncertain time, investors are likely to flock to Nvidia, which has a superior balance sheet and robust free cash flow, Gill said in a Tuesday upgrade note. (See his track record here.)

The company has a net cash position of $8.9 billion, or $14.34 per share, the analyst said.

Even after the Mellanox Technologies, Ltd. MLNX deal closes, Nvidia will be left with net cash of $2 billion, the second-highest in the industry, he said. 

Gill said he expects data center, which accounted for 31% of Nvidia's revenues in the fourth quarter, to weather the pandemic and remain strong throughout 2020.

This expectation is based on increasing demand for public and private cloud as COVID-19 forces a significant number of people worldwide to work from home, leading to robust data center spending by hyperscalers, enterprise and vertical customers, the analyst said. 

Demand for Nvidia's GPUs in the medical field is expected to surge, especially in DNA sequencing and drug development, according to Needham. 

"We expect the pandemic and the public health risk it poses to invigorate the use of NVDA's GPUs in the medical field," Gill said. 

Needham also sees Nvidia's valuation as attractive, as the stock has pulled back about 35% from its peak.

The Nvidia Price Action

Nvidia shares were trading 14.82% higher to $244.20 at the time of publication Tuesday. 

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