The last Nvidia bear on Wall Street throws in the towel and ditches ‘sell’ rating

jensen huang nvidia ceo ces talk

Jensen Huang, CEO of Nvidia, reacts to a video at his keynote address at CES in Las VegasRick Wilking/Reuters

  • There are no more “sell” ratings for Nvidia on Wall Street following its strong second-quarter earnings.

  • Morningstar was the last firm to ditch its bearish view. There are now 54 “buy” ratings and five “hold” ratings for Nvidia.

  • “We have little doubt that Nvidia will sell every GPU it can secure from TSMC in the quarters ahead,” Morningstar said.

Nvidia’s blockbuster second-quarter earnings report was enough to convince the last bear on Wall Street to throw in the towel.

Morningstar Research analyst Brian Colello upgraded Nvidia to “hold” from its Wall Street-equivalent rating of “sell” in a note on Wednesday. He increased his “fair value” estimate for Nvidia to $480 from $300.

Nvidia reported second-quarter revenue of $13.5 billion, beating analyst estimates of $11.1 billion. Just a few months ago analysts expected revenue of about $7 billion. Adjusted earnings per share of $2.70 topped estimates of $2.09.

For the third quarter, Nvidia sees revenue of about $16 billion, well ahead of the consensus for $12.4 billion.

“We are now much more optimistic about the rise of AI workloads and how Nvidia’s wide moat should cement itself as an AI chip leader,” Colello said.

“Based on the results, guidance, and supply expansion at key partners like TSMC, we forecast that Nvidia’s data center business, which includes AI graphics processors, will generate $41 billion in revenue in fiscal 2024. This compares with $15 billion a year ago and only $3 billion just four years ago,” he added.

The bullishness from Colello could have staying power based on Nvidia’s solid results, according to the note. He called Nvidia’s capital allocation “exemplary” and described the company’s economic moat as “wide.”

One of the big worries for Nvidia investors is that its current surge in business is a pull-forward in demand that will be short-lived. But Colello disagrees.

“We could be wrong, but we see little evidence that these GPU orders are up-front spending or a one-time build… We anticipate further growth of $60 billion in data center revenue in fiscal 2025, rising to $100 billion in fiscal 2028. Such growth might be unprecedented in large-cap tech, but we foresee all types of enterprises investing in AI,” Colello said.

“We have little doubt that Nvidia will sell every GPU it can secure from TSMC in the quarters ahead.”

According to data compiled by Bloomberg, Wall Street has 54 “buy” ratings and five “hold” ratings on Nvidia stock.

One analyst that flipped from “hold” to “buy” on Nvidia is Stifel’s Ruben Roy. In a Wednesday note, he noted that visibility into the company’s demand has been extended, which should reduce uncertainty.

“While we have long viewed NVDA as the primary beneficiary of the increasing investments being made on large language models/generative AI training clusters, we underestimated the opportunity related to the potential shift of $1 trillion of installed data center infrastructure from general purpose compute to accelerated compute architectures,” Roy said.

Read the original article on Business Insider

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