Interactive Investor

Can Nvidia deliver another ‘shock and awe’ quarter?

After Nvidia’s stunning first-quarter update, two Wall Street banks have backed the semiconductor giant’s shares ahead of results next week.

15th August 2023 15:22

by Graeme Evans from interactive investor

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Nvidia logo alongside AI sign 600

Bullish comments have reignited interest in high-flying NVIDIA Corp (NASDAQ:NVDA) after a Wall Street bank said shares are at a good entry point and another urged investors to stay the course.

The massive shift in the spending towards artificial intelligence (AI) has sent Nvidia shares 200% higher as the leading player in this year’s revival for mega-cap valuations.

But the past month has seen a pullback, partly due to macroeconomic concerns as well as a resumption of some supply chain anxieties.

Morgan Stanley believes this represents an opportunity after it last night reiterated its “top pick” stance ahead of Nvidia’s quarterly results on 23 August.

The bank expects a “meaningful beat and raise quarter” as well as strong visibility for the next three or four quarters.

The question for the Wall Street firm is whether the figures repeat the “shock and awe” of the last one, when Nvidia made the semiconductor industry’s largest increase to guidance for a single quarter.

Morgan Stanley expects further upside to the previous guidance and said its own conversations and analysis of public data points suggest that less than half of the current demand is being met.

Nvidia’s data centre business is expected to drive much of the growth over the next five years, as enthusiasm for generative AI creates a strong trading environment. Its technology also serves high-end video games and professional graphics workstations.

The shares today traded near $441, which compares with Morgan Stanley’s base case of $500. It said a valuation of 50 times forecast 2024 earnings of $10 a share was a premium to peers justified by the probability of upward revisions in the near term.

Counterparts at UBS last night increased estimates in advance of the second quarter results, with the bank’s price target moving up from $475 to $540 a share.

UBS said: “We recommend investors stay the course and remain bullish amid the recent pullback in the stock over the past month.

“Demand will dictate Nvidia’s long-term AI revenue opportunity, but supply should be the primary determinant for its data-centre revenue at least through 2024.”

Even for more tactical investors, UBS said it was “early to get off this train” as annual comparisons won’t get tough until the year-end.

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