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Is NVIDIA's Profit About to Rocket 67% Higher?

By Eric Volkman – Jun 28, 2020 at 10:27AM

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One analyst thinks the company's latest deal with Mercedes Benz could turbo-charge the bottom line.

NVIDIA's (NVDA 5.24%) recent deal with Daimler unit Mercedes-Benz could provide some real acceleration for the IT company, particularly on its bottom line.

That's the opinion of analyst Stacy Rasgon at AllianceBernstein's (AB 2.65%) Bernstein Research. He estimates the arrangement could ultimately bring in anywhere from $2.0 billion to $2.5 billion in revenue, and $2.50 to $3.00 in per-share earnings to NVIDIA"s results. For comparison, in fiscal 2020 the company booked just over $10.9 billion in revenue, while its GAAP earnings were $4.52 per share.

Current and classic Mercedes-Benz cars.

Image source: Mercedes-Benz (Daimler).

Mercedes-Benz is the largest luxury auto maker in the world, so NVIDIA is partnering with a company that not only has strong sales for the segment (almost 2.4 million vehicles sold in 2019), but also serves a relatively affluent customer base. Such clientele would likely be more willing to buy premium software offerings to make their drives more comfortable and/or entertaining.

The new deal between the two companies was announced last week. They will collaborate on developing a state-of-the-art computing platform built on NVIDIA'S DRIVE technology.

NVIDIA wrote in its press release on the arrangement that the platform will be "first-of-its-kind software-defined computing architecture that includes the most powerful computer, system software and applications for consumers, marking the turning point of traditional vehicles becoming high-performance, updateable computing devices."

Interestingly, the Bernstein analyst did not change either his price target or recommendation on NVIDIA stock. Rasgon still believes it is worth $415 per share -- 13% higher than its most recent closing price -- and is worthy of an outperform rating.

On Friday, NVIDIA's shares ended the day 3.5% lower, a steeper fall than that experienced by the broader stock market and many peer tech stocks.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool has a disclosure policy.

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NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$131.67 (5.24%) $6.55
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