Raising Our Fair Value Estimate for Nvidia
Product launches and Mellanox acquisition bode well, but we view shares as overvalued.
Nvidia (NVDA) reported impressive first-quarter results with revenue exceeding the midpoint of management’s guidance. Although it faced supply and demand headwinds related to coronavirus, Nvidia was able to outperform thanks to increased work from home, learn from home, and gaming trends. This dynamic more than offset weaker automotive sales, which is expected to persist over the next few quarters. The firm launched its latest A100 data center GPU on May 14, Nvidia’s first GPU made on TSMC’s 7-nanometer process and part of its new Ampere architecture. The A100 boasts impressive performance enhancements from its predecessor (V100) and contributed to first-quarter sales. We anticipate continued momentum for Nvidia’s data center business, particularly with the inclusion of recently acquired Mellanox in second-quarter results, as customers leverage both Nvidia’s training and inference GPUs in key AI applications such as natural language understanding, conversational AI, and deep recommendation engines. After incorporating Mellanox into our valuation model and the solid near-term outlook, we are raising our fair value estimate to $200 per share from $160. Nevertheless, we view shares as overvalued as we think current levels imply narrow-moat Nvidia is the sole beneficiary of the burgeoning AI and self-driving trends.
First-quarter sales grew 39% year over year to $3.1 billion. The sharp year-over-year spike can be attributed to an artificially deflated first quarter fiscal 2020 (calendar 2019) due to the massive decline in gaming GPU sales during that period stemming from a decline in demand in GPUs for cryptocurrency mining. Gaming sales were up 27% year over year due to strength across all major products including desktop GPUs and Nintendo Switch chips. Management highlighted a 50% increase in hours played on its GeForce platform during the quarter, as more gamers were forced to quarantine. Data center sales were $1.1 billion, up 80% year over year and 18% sequentially.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.