Nvidia (NASDAQ: NVDA) Is Still A Buy, Even at All-Time Highs

With a 100% rally from February 2019 through February 2020, many investors of blue-chip chip stock Nvidia (NASDAQ: NVDA) were surely popping bottles and congratulating themselves on the completion of a stunning recovery. From a previous all time high set in October 2018, shares had fallen more than 50% over the following few months and many would have been nervous, thinking the hype was over and that it was time to settle down for the long haul after a 1,000% move in less than three years. But this is the world of high tech and if there’s one thing that Wall Street loves, it’s a comeback story in a high growth stock.

So when shares fell again in Q1 with the onset of COVID-19, there were few surprised that the stock was able to recover quickly. A 40% drop in less than a month would have rattled many but for those inclined to look back at recent history, an equally fast recovery was always on the cards. By this past May, shares were back at pre-COVID levels and closed out yesterday’s session up a full 120% from Q1’s low at fresh all-time highs.

Silver Lining

The California based company makes chips and processors for gaming consoles and has been constantly at the forefront of the industry with their graphics processing units (GPUs) in recent years. The COVID driven lockdown drove a two-fold jump in demand for many of their offerings over the past few months. On the one hand you have the overnight spike in the number of people working from home while on the other the shelter-in-place orders across the major cities fuelled a massive rise in gaming time.

This opportunity was not missed on Wall Street. Bank of America zeroed in on this tailwind last month when their analyst Vivek Arya pointed at demand for the company’s Turing card exceeding supply as market penetration increased. Later that same month, Mizuho followed Bank of America by maintaining their Buy rating on the basis of continued demand for their GPUs with big things expected in the second half of the year.

Susquehanna posted what was at the time a street high price target of $450 on Nvidia share’s in the last week of June when they were trading around $370. They were particularly bullish on the recent Mellanox acquisition and forecasted double digit percentage growth on their assets in the coming years.

Not to be outdone, Bank of America were out with a new street high target of $460 this week after a GPU survey run by video game distributor Steam. Their analyst Vivek Arya, who struck that bullish tone back in June, sees the coming release of next-generation consoles as driving a widespread upgrade to new GPUs which will pump demand and drive up Nvidia’s revenue forecasts.

Data Center Strength

Nvidia’s strength isn’t just in video game console units either. They have an impressive data center business line which accounted for 37% of their total revenue in their fiscal Q1 earnings report which was released towards the end of May. Revenue from this component alone was up 80% year on year and is viewed by many as the dark horse, growing somewhat unnoticed while their GPUs and chip updates plus releases grab the headlines.

Having smashed analyst expectations with that latest earnings release, they go into the second half of the year with $9 billion in cash. This will give investors confidence that they can ride out any upcoming volatility shocks to the equity markets, an important attribute given the alarming rise in coronavirus cases across the country.

So while the college textbooks may say to be wary of a stock that’s printing multiple all-time highs as part of a multi-week 100% rally while its RSI is hovering close to 70, the 21st century investor is seeing the opportunity at play here and the momentum the stock is carrying. Unless video games go extinct in the next few weeks, any pullback should be considered a buying opportunity.