Why Merrill Lynch Is Pushing Nvidia to All-Time Highs

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Nvidia Corp. (NASDAQ: NVDA) is now a staple in the tech industry, after experiencing explosive growth in just the past couple of years, and it doesn’t look like shares will be slowing down any time soon. In fact, the stock hit an all-time high in Monday’s session following a key upgrade. Merrill Lynch is continuing to take a very bullish stance on the stock, as the firm said in its most recent report.

Overall the brokerage firm’s positive view on Nvidia is based on its underappreciated transformation from a traditional PC graphics chip vendor, into a supplier into high-end gaming, enterprise graphics, cloud, accelerated computing and automotive markets. At the same time, the company has backed this up with consistent execution and a solid balance sheet with demonstrated commitment to capital returns.

Considering this, Merrill Lynch reiterated Nvidia with a Buy rating and raised its price objective to $210 from $185, implying an upside of 16.6% from the most recent closing price of $180.11.

The brokerage firm sees potential upside in the second half of 2017 and into 2018, driven by:

  • Data center capex acceleration to 31% half-over-half in the second half and 21% year over year in 2018, versus a −7% half-over-half decline in the first half.
  • New independent benchmarks for upcoming Volta products reaffirm Nvidia’s competitive moat.
  • Updated gaming surveys show large upgrade opportunity with premium-priced cards, among 200 million deployed gamer-base.
  • Headroom for increased investor interest, with only 22% ownership among U.S. large-cap fund managers versus 28% to 35% ownership of large-cap semi peers.

Merrill Lynch went on to say in its report:

Similar to other large successful tech industries, we expect the $30 billion AI chip market to also feature one dominant supplier – we think NVidia- followed by tail of rivals. Recently, NVidia data center sales disappointed some lofty expectations on pause ahead of new NVidia Volta and Intel Skylake server rollouts. However, our analysis shows cloud capex could materially accelerate to +31% half-over-half in the second half versus -7% in first half; and to +21% year-over-year in calendar 2018 from 16.5% in 2017E. Meanwhile, tech blog Wccftech earlier today flagged first benchmarks showing NVidia’s new Volta V100-based DGX-1 has unrivalled and unprecedented 2x-3x performance boost vs. prior-gen Pascal P100. Separately we note NVDA’s first mover advantage and growing influence in the multi trillion$ healthcare industry where AI/deep learning is being used for predictive analytics, image scanning and pathology assessments. Indeed about 50% of submitted papers at last week’s Medical Imaging Computing conference (MICCAI) were on deep learning.

Shares of Nvidia were last seen up over 5% at $189.84, with a consensus analyst price target of $158.23 and a 52-week range of $62.74 to $189.89.