Nvidia Shares Remain Under-Owned

It’s hard to imagine a stock that’s up 644 percent in three years could be underappreciated, but Bank of America says that may just be the case when it comes to NVIDIA Corporation NVDA.

Based on the latest survey of the Steam online gaming portal, as well as online graphics card sales, analyst Vivek Arya says investors may not be fully appreciating the PC gaming graphics processor opportunity for Nvidia and rival Advanced Micro Devices, Inc. AMD.

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A Look Ahead For Nvidia

In a new research note, Arya made several key observations about Nvidia’s future:

1. With Nvidia’s current-generation Pascal GPU at just 12 percent penetration among Steam users, there is significant upgrade potential for both Pascal and the upcoming Volta.
2. Bank of America’s survey of leading e-tailing sites revealed Nvidia still accounts for nearly 100 percent share of top-selling GPU cards.
3. The Nintendo Co. Ltd (ADR) NTDOY Switch console, which contains roughly $35–$40 of Nvidia content per unit, remains in high demand despite limited inventories. Bank of America estimates 35 million Switches will be sold within the next two years.
4. While the Street has adjusted estimates to reflect strength in Nvidia’s high-growth data center segment, upside in Bank of America’s estimates comes from the gaming business.

“We believe the Street underappreciates the sustainability of recent growth tailwinds in NVDA’s PC gaming business as well as the upside from Nintendo Switch,” Arya wrote.

Bank of America maintains a Buy rating and $16.50 price target for AMD and a Buy rating and $185 price target for Nvidia.