Nvidia Data Center Numbers Blow Away Expectations

Nvidia Corp.’s shares surged to close at a record high Friday as analysts practically wrote Valentine’s Day notes for the stock and hiked their price targets as the chip company barreled past expectations in data-center sales after a tough year of revenue declines.

Nvidia (NVDA) stock surged to an all-time intraday high of $294.97 and closed up 7% at $289.79 Friday for its first record close in nearly a year and a half. Previously, Nvidia’s highest close was $289.36, set on Oct. 1, 2018.

In comparison, both the S&P 500 index (SPX) and the tech-heavy Nasdaq Composite Index (COMP), finished up 0.2%, while the PHLX Semiconductor Index (SOX) finished down 0.2% Friday.

Of the 39 analysts who cover Nvidia, 28 have buy or overweight ratings, nine have hold ratings and two have sell or underweight ratings. Of those, 21 analysts hiked price targets for an average $297.17, or 13% higher than the previous day’s average of $262.41.

Late Thursday, Nvidia not only beat Wall Street earnings estimates for the quarter but also reported $140 million more in data-center revenue than the Street had expected, reaching a record for that segment as it creeps towards $1 billion in quarterly sales. Additionally, the company’s outlook for the first-quarter also topped the Street view even after Nvidia lowered estimates by $100 million to account for expected headwinds from the coronavirus COVID-19.

Across the board, analysts said they could find little wrong with the quarter except flat automotive sales and were in agreement that data-center sales had “crushed” expectations.

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RBC Capital Markets analyst Mitch Steves, who has an outperform rating and a $350 price target, said “we’re struggling to see a negative point in the print” given record data-center revenue, record gross margins, a better than seasonal first-quarter guidance even with the $100 million estimated impact from COVID-19 and the potential tailwind from the company’s pending acquisition of Mellanox Technologies Ltd. (MLNX) which still needs clearance from Chinese regulators.

Evercore ISI analyst C.J. Muse, who has an outperform rating and a $345 price target, said Nvidia blew away expectations with its data-center numbers.

“Big picture, AI workloads are migrating from image recognition to now natural language understanding, conversational AI, and recommendation systems, driving a meaningful increase in compute requirements,” Muse said. “Add in growing breadth of customers across both hyperscale and key industry verticals as well as a complete product portfolio servicing both Training (V100) and Inference (T4), and we continue to believe NVIDIA is at an inflection for its Data Center business.”

Cowen analyst Matthew Ramsay, who has an outperform rating and a $325 price target, said results affirmed his belief that Nvidia is tied to the “most attractive verticals” in the chip sector.

“Overall, we believe Nvidia is benefiting from the combination of pent-up demand following under-investment from cloud customers in C’1H19, accelerating demand for real-time conversational AI workloads, and ramping inferencing business as AI moves to the implementation stage with increasing investment from both Enterprise and Hyperscaler customers,” Ramsay said.

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On Thursday evening’s conference call, Nvidia Chief Executive Jensen Huang said “the primary driver for growth is AI” when it comes to data-center sales.

Jefferies analyst Mark Lipacis, who has a buy rating and a $330 price target, called Nvidia the “poster child” for its so-called “4th tectonic shift in computing,” which includes parallel processing, Internet-of-Things computing, monetizing big data, and AI.

Lipacis said he doesn’t “see much competition for NVDA in the AI/Neural Networking markets, due largely to the ecosystem the company has created around its CUDA software and cuDNN libraries.”

Raymond James analyst Chris Caso, who has an outperform rating and a target price of $300, said Nvidia is showing a strong upside “before the product cycle has even gotten started.”

“What’s striking is that NVDA posted such exceptionally strong datacenter growth (up 33% Q/Q to a new record) before its expected new product launch, owing to the newfound traction in AI inferencing,” Caso said. “Datacenter is expected to grow strongly again in April – we don’t know if any new product revenue is included in guidance, since the company wouldn’t comment on the timing of that launch.”

Nvidia is expected to launch new products at its annual GTC conference in San Jose, Calif., March 23 to March 26. COVID-19, however, is also messing with the conference season following the cancellation of the Mobile World Congress in Barcelona that had been scheduled for the end of the month.

Bernstein analyst Stacy Rasgon, who has a market perform rating and a $300 price target, said there “wasn’t much to nitpick on the quarter” but questioned how long data-center momentum could last.

“With a datacenter number that powerful (especially after a years’ worth of comparable stagnation) the NVDA story of old feels poised to come roaring back, & they delivered even as expectations had risen markedly into the print,” Rasgon said.

“The natural further question is of course around sustainability of the datacenter trajectory from here,” Rasgon noted. “Investors typically model datacenter growing sequentially into perpetuity, and the company has now set a much higher base, potentially nerve-racking as we have now seen the segment is big enough to demonstrate cyclicality going forward, especially given typical hyperscale ‘build and digest’ purchase patterns.”

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The fourth quarter has proved to be a big one for chip company’s data-center sales as cloud providers and hyperscalers have opened up their capital-expenditure pocketbooks. This past earnings season, Intel Corp. (INTC) reported $800 million more in data-center sales than Wall Street had expected, while Advanced Micro Devices Inc. (AMD) also reported strong growth in data-center sales even though specifics were masked as poor console sales dragged down its combined reporting segment.

Over the past 12 months, Nvidia stock is up 88%, while the SOX index is up 46%, the S&P 500 is up 23%, and the Nasdaq is up 31%.

Read more from Wallace Witkowski at MarketWatch.com

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