Nvidia Corporation (NASDAQ: NVDA) shares have advanced more than 15% in the last thirty days, and the current price stands around $814. The current risk/reward ratio is not good for long-term investors, although an analyst from BMO raised his price target to $1000.
Fundamental analysis: Nvidia’s data center business could hit $32B in the next few years
Nvidia Corporation is an American multinational technology company that is the leader in the design of Graphics Processing Units (GPUs). Nvidia reported its first-quarter results in the last week of May; total revenue has increased by 83.8% Y/Y to $5.66 billion while GAAP EPS for the same period was $3.03 (beats by $0.51). Nvidia raised its outlook for the second quarter and announced that it expects revenue of $6.30 billion while GAAP and non-GAAP gross margins are expected to be around 65%.
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Wells Fargo increased its price target from $715 to $875 on Nvidia and remains confident in Nvidia’s ability to sustain over 20% data center growth while still benefitting from a positive GeForce GPU upgrade cycle. Last week, a research company BMO also raised its price target from $750 to $1000 on Nvidia because it expects that Nvidia’s data center business will hit $32B in the next few years.
“The data center business continuing its evolution from “hardware to a hardware with a meaningful software component further out.” The increasing software mix is expected to raise gross margins to 75% from the prior model of 72%,” said Ambrish Srivastava, an analyst from BMO.
Nvidia Corporation is in a good position to grow its business, but with a $515 billion market capitalization, this stock is not undervalued, and the risk/reward ratio is not good enough for “value” investors. Nvidia trades at more than seventy times TTM EBITDA, the book value per share is around $30, and lots of positive expectations have already been included in the stock price.
Technical analysis: $700 represents a strong support level
Nvidia shares have been moving in an uptrend last several weeks, but lots of positive expectations have already been included in the stock price.
Probably it is not the best moment to buy Nvidia shares, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels. The critical support level stands at $700, and if the price falls below this support, it would be a firm “sell” signal and probably a trend reversal sign.
Wells Fargo increased its price target from $715 to $875 on Nvidia, while a research company BMO set its target to $1000 because it expects that Nvidia’s data center business will hit $32B in the next few years. Nvidia is in a good position to grow its business, but this stock is not undervalued, and there are better long-term investment opportunities at the moment. If the price falls below $750 support, it would be a strong “sell” signal, and we have the open way to a $700 support level.
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