Why Wells Fargo Named Nvidia Stock as a ‘Top Pick’


Dec. 24 2019, Updated 7:36 a.m. ET

Nvidia (NVDA) stock closed 1.66% higher on December 20. The stock climbed after Wells Fargo picked Nvidia as the top semiconductor stock for 2020. Wells Fargo also increased the target price on the chip stock, as reported in Seeking Alpha. The stock even touched the 52-high of $240.39 during the trading session on December 20 and ended at $239.37. At the closing price, Nvidia’s market value was around $146 billion.

Nvidia stock was trading 0.4% below its 52-week high of $240.39 and 92.3% above its 52-week low of $124.46. The stock has risen about 79.7% year-to-date. The stock has also risen during the trading session today. Nvidia stock rose around 0.9% in the pre-market session today.

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Why did Nvidia stock rise?

According to Seeking Alpha, Wells Fargo analyst Aaron Rakers raised the target price on Nvidia stock to $270 from $240. The new target price implies a 12.8% premium to the current stock price. Wells Fargo continued to maintain its “overweight” rating on the stock.

Rakers thinks that Nvidia has the “most significant investor sentiment upside.” Also, the stock could gain from another acceleration in data center spending in 2020, according to Seeking Alpha.

Nvidia is focusing on the fast-growing high-margin data center segment to boost revenues. The company’s data center segment posted an 8.3% YoY decline in revenues in the third quarter of fiscal 2020. However, the data center revenues improved from the previous quarter. Nvidia continues to expect data center revenues to grow sequentially in the January-ending fourth quarter.

We believe the acquisition of Mellanox Technologies (MLNX) would help Nvidia expand in the data center market. On December 20, the company received antitrust approval from European Union and Mexico for the Mellanox deal. Nvidia hasn’t received clearance from China yet. The company expects the Mellanox deal to close in early 2020.

Last week, Piper Jaffray analyst Harsh Kumar also lifted the target price on Nvidia stock to $250 from $230. Piper Jaffray reaffirmed its “overweight” rating. On December 16, Jefferies increased its target price from $250 to $255 and maintained a “buy” rating.

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Analysts’ recommendations and target price 

Among the 41 analysts covering Nvidia stock, 29 have “buy” ratings—up from 28 last month. Nine analysts have “hold” ratings on the stock—down from ten the previous month. Meanwhile, three analysts have “sell” ratings on the stock—unchanged from last month. As of December 20, analysts have given Nvidia a 12-month average target price of $235.32. Based on the closing price on December 20, the target price represents the potential downside of 1.7%.

Financial performance and growth projection

The company has been making efforts to grow its business and boost revenues. Nvidia is gaining traction in the gaming and data center segments. The company wants to expand its AI business. The CEO stated during the earnings call that “GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries.”

In the October-ending third quarter, the company’s adjusted earnings fell 3.3% YoY to $1.78. Overall, the earnings rose around 43.5% from the previous quarter. Nvidia’s revenues fell more than 5% YoY in the third quarter and improved 16.7% from the previous quarter.

For the fourth quarter, Nvidia expects its revenues to grow 34% YoY and reach $2.95 billion (plus or minus 2%). Analysts expected the fourth-quarter revenues at $2.96 billion—up 34.1% YoY. Notably, analysts expect the sales to fall 8.1% YoY in fiscal 2020. Wall Street analysts expect the sales to improve 19% YoY in fiscal 2021.


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