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Why NVIDIA Stock Jumped Today

By Timothy Green – Aug 17, 2020 at 12:03PM

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Analysts are optimistic ahead of the chip company's earnings report this week.

What happened

Shares of graphics chip developer NVIDIA (NVDA -5.75%) surged on Monday following multiple price target bumps from analysts ahead of the company's second-quarter report. The stock was up about 6.2% at 11:25 a.m. EDT.

So what

Higher price targets came from analysts at Susquehanna and Oppenheimer. Susquehanna boosted its NVIDIA price target from $450 to $540, based on the expectation that NVIDIA's upcoming gaming GPUs will offset any slowdown in data center demand in the second half of 2020. NVIDIA has scheduled an event for Sept. 1 at which it's expected to unveil its newest line of high-end gaming graphics cards.

An NVIDIA graphics card.

Image source: NVIDIA.

Oppenheimer isn't quite as optimistic, raising its NVIDIA price target from $400 to $500. Oppenheimer is expecting a strong earnings report driven by data center demand, but like Susquehanna it sees a data center slowdown in the second half of the year. Oppenheimer shares the view that gaming will help offset any weakness in data center business.

Now what

NVIDIA has guided for second-quarter revenue of $3.65 billion, plus or minus 2%. The acquisition of Mellanox is expected to contribute a low-teens percentage to the total revenue figure. Analysts are expecting adjusted earnings per share (EPS) of $1.97, up from $1.24 in the prior-year period.

While NVIDIA may be benefiting from a boom in demand for gaming during the coronavirus pandemic, the stock is more expensive than it's ever been by a wide margin. Shares of NVIDIA trade for around 25 times annual sales, far above dot-com bubble levels and extremely optimistic for a semiconductor company . It may take more than solid results on Wednesday to boost the stock further.

Timothy Green 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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