Why NVIDIA Corporation Shares Will Fly Above $25

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of NVIDIA Corporation (NASDAQ: NVDA  ) gained more than 2% today after RBC Capital upgraded the graphics chip technologist from sector perform to outperform.

So what: Along with the upgrade, analyst Doug Freedman raised his price target to $26 (from $21), representing about 45% worth of upside to Friday's close. So while contrarians might be turned off by NVIDIA's year-to-date price strength, Freedman's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.

Now what: According to RBC, NVIDIA's risk/reward trade-off is rather attractive at this point. "NVDA's ability to leverage its past investments, with a more controlled spending structure ahead on unified, enables strong cash flow that is allowing a focus on capital return ($1.0bil planned for FY15)," said Freedman. "We believe the focus of its strategy including i) high-margin growth through vertical leadership; ii) strong B/S and significant liquidity; iii) focus on OpEx (on unified architecture leverages IP investments), is more aligned to facilitate a multi-year growth period in FCF." When you couple that upbeat outlook with NVIDIA's rock-solid financial position, it's tough to disagree with RBC's bullishness. 

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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9/3/2015 2:59 PM
NVDA $22.36 Up +0.15 +0.68%
Nvidia CAPS Rating: *****