Nvidia Analyst Says Chipmaker Lacks Earnings Potential To Justify Lofty Valuation

Needham dropped its bearish stance on NVIDIA Corporation NVDA Monday, but at the same time does not see the chipmaker as a compelling buying opportunity.   

The Nvidia Analyst

Rajvindra Gill upgraded Nvidia from Underperform to Hold.

The Nvidia Thesis

Nvidia is facing easy comparisons heading into the first half of calendar year 2020, specifically in graphics and data center, Gill said in a Monday note. (See his track record here.)

Gaming is seeing positive momentum thanks to an acceleration in the attach rates for ray tracing, the analyst said. 

After three consecutive quarters of negative year-over-year growth, the data center segment is poised to reach an inflection point in the fourth quarter of 2020, Gill said. All major hyperscalers have returned to spending, driving strength in V100 GPU and T4 GPU sales, he said. 

Nvidia is acutely focused on Natural Language Processing, which will likely be the next driver of AI, the analyst said. 

Gill expects Nvidia shares to push higher on a potential 7nm GPU release in March.

Despite Nvidia remaining the dominant AI chip supplier, Needham expects competition to intensify in 2020/2021. 

"We are on the sidelines on NVDA, as we believe the company does not have sufficient earnings growth potential to justify its high valuation," Gill said. 

Nvidia Price Action

Nvidia shares were trading 1.35% higher at $247.63 ahead of the open Monday. 

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Photo courtesy of Nvidia.