Why Analysts Keep Upgrading This Chipmaker Stock

This chipmaker’s biggest business has stabilized and multiple analysts are now bullish on the stock.

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Nvidia (NASDAQ: NVDA) has been getting a lot of love lately. 

Late last month, Goldman Sachs raise its price target for the chipmaker to $192 from $179. Last week, RBC Capital raised its price target for the stock to $217 from $190 and analysts at Evercore reiterated their Outperform rating on the stock and raise their price target from $185 to $225. Then this week, Piper Jaffray analyst Harsh Kumar reiterated his Overweight rating for the stock and set a price target of $200.

So what has these analysts so bullish on Nvidia?

In these cases, analysts have cited the chipmaker’s improving gaming business. 

Gaming was a key growth driver for Nvidia’s bull run that ended a year ago, however the segment has faltered in recent quarters. But Kumar says things are turning around.

“We believe NVIDIA is one of the best-positioned semiconductor companies from a company-specific catalyst perspective,” Kumar wrote in a note from Wednesday. “We feel the company’s two biggest growth drivers, namely gaming and data center are back.”

Kumar says inventory issues in the gaming end market for its graphic cards have been resolved, and he believes the company’s gaming-related sales will improve in the second half of Nvidia’s fiscal year.

Goldman analyst Toshiya Hari agrees and said they “expect the company to deliver strong sequential growth in FY3Q (Oct) in the Gaming segment supported by the normalization in channel inventory and the launch of its new products.”

Gaming is Nvidia’s largest segment, bringing in $1.31 billion in revenue in its Q2, beating analyst estimates but still down 27% on an annualized basis. Nvidia had fewer shipments of graphic cards for desktop PCs and system-on-chip components for gaming systems in the quarter.

However, the rest of this year could deliver a boost to Nvidia’s gaming business with several high-profile games being released over the coming months, including Activision Blizzard’s Call of Duty: Modern Warfare, Ubisoft Entertainment’s Watch Dogs: Legion, and Bethesda’s Wolfenstein: Youngblood.

All of these games are optimized for Nvidia’s RTX cards, “the only graphics cards [on] the market with hardware support for ray tracing,” said Nvidia CFO Colette Kress. “They deliver a two-times to three-times performance speed up over GPUs without a dedicated ray tracing core.”

Such performance is sure to attract gamers, which in turn encourages desktop and laptop manufacturers to use Nvidia cards. The RTX cards also got a massive endorsement when Microsoft’s Minecraft, one of the best selling games of all time, released a new version featuring support for ray tracing technology.

Looking into next year, CD Projekt Red’s Cyberpunk 2077 will be released in spring 2020 and will be optimized for RTX. The game is expected to be a big hit, and it should encourage gamers to buy Nvidia’s RTX GPU.

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