Why Nvidia Has A New Street-High Price Target

NVIDIA Corporation NVDA is scheduled to report its fiscal year 2021 first-quarter results May 21 after the close. Ahead of the results, and following the recent strong run in the shares, an analyst at Needham hiked their Nvidia price target to a Street-high number.

The Nvidia Analyst

Analyst Rajvindra Gill maintained a Buy rating and increased the price target from $270 to $360. (See his track record here )

The Nvidia Thesis

The positive Nvidia story hinges on three pillars, Gill said in a Monday note: the chipmaker's recently completed Mellanox acquisition, strong gaming sales and solid data center performance. (See his track record here.)

The analyst said Mellanox results have improved meaningfully since Nvidia announced its intention to acquire the Israeli chipmaker in March 2019.

Mellanox's revenues came in at $1.3 billion in 2019, the non-GAAP gross margin was at 68.3% and non-GAAP operating income was $384 million, he said. 

Needham anticipates that Mellanox will add 85 cents per share to fiscal 2021 EPS and hiked its 2021 EPS estimate from $7.05 to $7.90.

Gill said he expects upside to Nvidia's gaming segment thanks to the stay-at-home economy that boosted discrete GPU sales; growing ray-tracing adoption in leading games such as "Call of Duty," "Madden NFL," "Battlefield,"; and strong NINTENDO LTD/ADR NTDOY Switch sales.

The analyst is also positive about the data center segment.

"We expect data center (31% of F4Q20 sales), which is NVDA's largest growth driver, to continue benefiting from increased demand for both public and private clouds due to the ramp of data consumption in the cloud," the analyst said. 

Needham also noted an acceleration in the migration of data from on-premise to the hybrid and public clouds.

NVDA Price Action

At last check, Nvidia shares were rising by 3.65% to $323.90. 

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