Nvidia will rip 24% higher as it dominates thriving semiconductor markets through 2021, Bank of America says
- Nvidia's strong third-quarter results are foreshadowing continued outperformance over the next year, Bank of America analysts said in a recent note.
- The team led by Vivek Arya lifted its price target on Nvidia shares to $665 from $650, implying a 24% rally from Thursday's closing level.
- Demand for Nvidia's chips "remains strong across some of the most desirable end-markets in semis," including gaming, artificial intelligence, and cloud computing, the analysts said.
- Bank of America expects Nvidia's earnings to grow 2% in 2021 and nearly double their 2020 levels by 2025.
- Watch Nvidia trade live here.
Nvidia's industry-leading growth through 2020 sets the chipmaker up for continued gains in the new year, Bank of America analysts said in a note.
The semiconductor producer reported third-quarter results on Wednesday that beat estimates for earnings and sales. Revenue soared 57% from the year-ago period, and its computing and networking arm saw sales more than double to $1.94 billion.
Yet shares slid when trading opened on Thursday as investors balked at a forecasted decline in current-quarter data-center sales.
Those who dumped shares failed to see the chipmaker's long-term trajectory, the team led by Vivek Arya said. The company's 37% year-over-year organic sales growth exceeds that of industry peers, and 4% EBIT growth in 2020 lands in the top two among semiconductor stocks, the analysts highlighted.
Bank of America lifted its price target for Nvidia to $665 from $650, implying a 24% rally from Thursday's closing level. The team reiterated a "buy" rating for the shares.
The company's 2020 outperformance will spill over into the new year, the team said. Demand for Nvidia products "remains strong across some of the most desirable end-markets in semis" including gaming, artificial intelligence, and cloud computing, according to the bank.
In taking more market share in the rapidly expanding sector, Nvidia's profits are forecasted to grow 2% through the next calendar year. By 2025, earnings per share will have nearly doubled their 2020 level, the analysts added.
The bank's rosy outlook isn't without its risks. Encouraging COVID-19 vaccine progress already prompted a mass shift of investor capital to value stocks from growth names earlier in the month. Continuation of the trend could pull more cash out of Nvidia, the analysts said.
The company's purchase of ARM from SoftBank also presents a challenge. The deal hinges on authorization from Chinese regulators, and the tense geopolitical environment could throw a wrench in approval, Bank of America said. Increased competition from other internal production efforts at major customers might present a hurdle down the road, the team added.
Nvidia traded at $530.68 per share as of 12:30 p.m. ET Friday, up 128% year-to-date. The company has 80 "buy" ratings, five "hold" ratings, and two "sell" ratings from analysts.
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