With Nvidia Down 13% This Week, Jefferies Says 'Buy On Weakness'

NVIDIA Corporation NVDA shares were down 5 percent to $156.51 in pre-market trading Friday in reaction to its second-quarter results. Ahead of the results, there was nervous selling, with the stock declining over 4 percent on Thursday alone amid the news that short seller Andrew Left of Citron Research has shorted the stock.

Jefferies is undeterred by the after-market weakness and said its Tectonic Shift thesis is intact. Therefore, the firm views the after-market weakness as a particular opportunity.

The firm reiterated its Buy rating on the shares of Nvidia, with a $180 price target.

Thursday, after the market close, the graphics chipmaker reported non-GAAP earnings of $1.01 per share compared to 53 cents per share last year.

Revenues were up 56 percent year over year and 15 percent sequentially to $2.230 billion.

For the third quarter, the company expects revenues of $2.35 billion, plus or minus 2 percent.

Jefferies' Take

Commenting on the results, Jefferies analyst Mark Lipacis noted that both July quarter results and the October quarter guidance were ahead of estimates, thanks to strong gaming and crypto-currency GPUs. The analyst also noted that data center revenues climbed 175 percent year over year, although the growth decelerated to 2 percent sequentially from 38 percent in the previous quarter (see Lipacis' track record here).

See also: GeForce Countered: AMD Launches RX Vega Gaming GPU

Lipacis believes the deceleration is due to the company transitioning to its next gen data center GPU Volta. That said, the analyst believes data center would resume healthy sequential growth over the next several quarters, as Volta is qualified and ramps into scale applications.

Jefferies believes the near 7-percent sell-off in after-market trading was due to the sequential slowdown in data center revenues and investors viewing the cryptocurrency revenues to be of low quality.

Allaying concerns, the firm said, "Our field checks indicate that Volta's tensor cores extend its competitive lead in Neural Networks - and we believe DC resumes healthy QQ growth within the next several quarters."

All along, Jefferies has been suggesting that Nvidia will be a key beneficiary of the fourth Tectonic Shift in computing where parallel processing architectures capture share in the computing market. Wit Gaming, data center, autos and blockchains/cryptocurrency all being parallel applications, the firm said their healthy growth supports its thesis.

At time of publication, shares of Nvidia were down 5 percent at $156.50.