Nvidia (NVDA) stock has been on the rampage since the turn of the year, barely pausing to take a break. The macro environment and stay-at-home measures have played to Nvidia’s strengths, and with year-to-date gains of a 35%, expectations are high heading into next Thursday’s earnings.
According to 5-star Merrill lynch analyst Vivek Arya, the company’s recent acquisitions will “add new growth legs,” to its already wide-reaching limbs.
Last week, following Chinese regulatory approval, Nvidia finally closed the long awaited Mellanox acquisition – paying $6.9 billion for the Israeli data center specialist.
“Mellanox’s networking capabilities (Spectrum5 switch), and its dominant 59% share in supercomputing connectivity (Infinband) also well complement NVDA’s recent forays into 5G edge compute, and supercomputing/HPC acceleration,” Arya noted.
Last week was a busy one at Nvidia HQ, as the company announced it planned to add another name to the family. The company intends to acquire Cumulus – a provider of open source network tools. Arya believes that, together, the new additions could provide 10% accretion in the near term (FY22/CY21E). But, looking further ahead, the new purchases could potentially increase data center sales from the current 30-35% up to 45-50% of Nvidia’s total revenue, eventually pushing CY22/23 pf-EPS to the $15 region.
Moreover, the additions should further increase Nvidia’s data center market share, moving it closer to becoming a “compute & networking powerhouse.”
Arya said, “While the company has been a pioneer and leader in acceleration processing layer, Mellanox (networking, data pre-processing via smart network interface-cards or NICs) and Cumulus (Linux-based open source networking tools) add critical/timely complementary capabilities, potentially challenging leaders Broadcom, Intel and traditional hardware and networking OEMs.”
Accordingly, Arya reiterated a Buy rating on NVDA shares, along with a price objective of $360. Investors could be pocketing gains in the shape of 16%, should the target be met over the next 12 months. (To watch Arya’s track record, click here)
Looking at the consensus breakdown, Nvidia’s Strong Buy consensus rating is based on 26 Buys, 4 Holds and 1 Sell. Interestingly, though, the average price target of $317.57, represents a modest upside of 2%. Nvidia’s share gains appears to have caught the Street off guard, so expect some analysts to revise their Nvidia models in the near term. (See Nvidia stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
