Nvidia Stock Looks Strong Ahead of Earnings Release

Nvidia (NVDA) stock has gained momentum after struggling due to the loss of cryptocurrency demand last October. The chipmaker’s stock rise has boosted investors’ confidence.

This year, Nvidia stock had risen over 52% as of November 1. Last month, the stock rose around 15.5%. The stock started rising in June and accelerated after the company release strong Q2 earnings in August. We expect improving chip demand to boost the stock further. Analysts, institutional investors, and option traders are also bullish on Nvidia.

Nvidia stock rose 0.78% on Friday and closed at $202.59, 6.8% below its 52-week high of $217.41 and 62.8% above its 52-week low of $124.46. At Friday’s closing price, Nvidia had a market capitalization of $123.4 billion. As of 4:55 AM ET today, the stock had risen 1.27% in premarket trading. What’s driving Nvidia?

Nvidia’s performance

Nvidia has been focusing on improving all of its business segments. The company is looking to expand in the AI market amid high demand in the fields of supercomputers, smartphones, cloud services, and data centers. It’s also working toward gaining share in the high-growth data center market. Like Nvidia, rival Intel (INTC) is optimistic about its data-center and Internet of Things businesses.

Nvidia is also looking to boost its gaming segment. In August, Nvidia partnered with Microsoft (MSFT) to offer RTX ray-tracing technology for use in Microsoft’s video games. And October 29, the chip giant unveiled two new SUPER graphics cards for gamers. Nvidia’s GeForce GTX 1660 SUPER and GeForce 1650 SUPER, based on Turing architecture, have more power and deliver much better performance than the prior generation’s GTX 10-series GPUs. These GeForce GPUs could boost Nvidia’s gaming business in fiscal 2020’s second half.

However, Nvidia faces GPU competition from rival Advanced Micro Devices (AMD), whose Navi 21 and Navi 22 have been dubbed “Nvidia killers.” The processors are set to launch next year.

Nvidia saw 13 consecutive quarters of double-digit revenue growth up until fiscal 2019’s third quarter. In the last three quarters, its revenue has fallen YoY (year-over-year). In the second quarter, though Nvidia’s revenue fell 17% YoY, it improved sequentially.

Nvidia’s expectations for Q3

Nvidia expects its revenue to continue to decline in Q3, by 8.8% YoY. However, the company expects its revenue to improve 12% sequentially.

Analysts expect the company’s revenue to fall 8.3% to $2.9 billion in the third quarter, and 8.01% in fiscal 2020 (ending January 2020) to $10.8 billion. They expect its sales to improve by around 20.0% in fiscal 2021 to $12.9 billion.

Analysts expect Nvidia’s EPS to fall by 14.2% to $1.58 in the third quarter, and 18.7% to $5.40 in fiscal 2020. They then foresee its EPS rising significantly in fiscal 2021, by around 32.0% to $7.13.

Analysts like Nvidia stock

Many analysts are bullish on Nvidia’s Q3 earnings results, set to be released next week. On October 15, BofA (Bank of America) raised NVDA’s price target to $250 from $225. And on October 25, RBC Capital Mitch Steves raised Nvidia’s price target to $251 from $217. The analyst is bullish on the company’s data-center segment and thinks higher CPU server demand could add to the chipmaker’s growth. Evercore ISI, SunTrust Robinson Humphrey, and Goldman Sachs analysts are also betting on Nvidia stock.

Analysts’ recommendations for Nvidia stock

Of the 39 analysts covering Nvidia stock, 27 suggest “buy,” nine suggest “hold,” and three suggest “sell.” Their average 12-month target price of $194.73 for NVDA implies a 3.9% downside from its current price. Analysts’ median target is $192.

We believe Nvidia stock has strong long-term growth prospects. Last month, the US and China reached the first phase of a trade deal. The move could be a good sign for chip companies. Delays in the tariff hike set for December could also boost chip stocks.