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Gamers compete at the ‘Nvidia’ booth during the Electronic Entertainment Expo E3 in Los Angeles.
Christian Petersen/Getty Images
Nvidia
was rising Wednesday after it received an upgrade from analysts at New Street, who said their fears about crypto-related weakness mostly had played out and that the outlook for gaming and datacenters still was “very strong.”
Analyst Pierre Ferragu upgraded the stock to a Buy from Neutral and set a $280 price target, up from $250.
“The secular outlook for gaming, visualization, and datacenter is still very strong, and on the datacenter front, near-term visibility is very strong as well, with supply constraints being the limiting factor,” he wrote in a research note.
Ferragu previously had warned investors about how a slowdown in cryptocurrency activity and oversupply of Nvidia (ticker:
NVDA
) graphic chips could hurt the company’s revenue. When crypto prices crashed in 2018, Nvidia’s relative multiple contracted by about 30%, he noted, while sales took a hit for four straight quarters.
Some investors were concerned that a similar pattern could happen this year as
ethereum
mining tapers off. In 2021, ethereum mining alone likely boosted Nvidia’s gaming revenue by about $2 billion in 2021, Ferragu calculated.
But the analyst doesn’t foresee such a drastic impact this time around.
“We no longer see crypto as a reason not to own the stock,” Ferragu said.
“A weakness driven by crypto would be limited, short-lived, and only an opportunity to add to positions,” he added.
In addition, the market may already be pricing in a crypto correction. Since November 2021, the relative multiple has already contracted by 25%, the analyst estimated. And that’s before seeing any upside from the company’s datacenter momentum, which “benefits from excellent demand driver and a product cycle,” he added.
Most analysts echo Ferragu’s take on the stock, with 82% of analysts polled by FactSet rating it a Buy. Some analysts have taken a more cautious approach. Baird analyst Tristan Gerra downgraded the stock to Neutral from Outperform on Monday, citing concerns over slowing consumer demand and falling prices for graphic cards.
Nvidia stock was up 2.7% to $220.87 on Wednesday. The stock has lost nearly 25% this year.
Write to Sabrina Escobar at sabrina.escobar@barrons.com