Over the last two years, Nvidia (NVDA) has made a habit of delivering “beat and raise” earnings reports. With the chip giant reporting F1Q21’s financials after the close on Wednesday, May 25, are investors in for another treat? Not according to Susquehanna’s Christopher Rolland.
“Unlike recent quarters,” said the 5-star analyst, “we believe any significant beat and raise may be capped by Gaming headwinds.”
So, what are these headwinds constraining Nvidia’s biggest breadwinner?
Well for one, retail premiums above MSRP (manufacturer’s suggested retail price) for NVIDIA cards have “declined precipitously.” In mid-2021, they were at a peak of +130% but fell to +78% in January before dropping further to 23% right now. At the same time, “significant restocking” has taken place with retailers now having all major card families on the shelves.
The main factor behind these changes, according to Rolland, is down to the “reopening,” which heading into the print, presents a “potential intermediate-term narrative risk.”
Additionally, the analyst has previously stressed the risk of 2H22 being a “WFH PC hangover,” and Rolland believes the latest commentary from Intel/AMD bolsters his case.
That said, there is a counterbalance to the Gaming headwinds. While Gaming has always led the way at Nvidia, Data Center has steadily become almost as big of a revenue driver. In fact, Rolland expects a “strong result” for Data Center, believing that by now it has “grown to become even larger than Gaming.”
“Healthy underlying demand for NVIDIA’s products is being driven by hyperscale cloud computing, AI workloads, natural language processing, deep recommender models, and vertical Enterprise products,” Rolland elaborated.
While Rolland does not think another “substantial beat and raise” is in the cards, he also notes that given the shares’ uncharacteristic underperformance – trailing the SOX by around 17% year-to-date – there’s currently a “lowered bar for execution.”
All told, then, Rolland maintained a Positive (i.e., Buy) rating on NVDA along with a $280 price target. If correct, investors could be lining their pockets with a 67% gain. (To watch Rolland’s track record, click here)
Overall, of the 26 analyst reviews on file, 5 stay on the sidelines but all the rest are positive, making the consensus view on this stock a Strong Buy. The forecast calls for one-year gains of ~84%, considering the average price target clocks in at $308.26. (See Nvidia stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
