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Why NVIDIA Stock Was on Fire on Thursday

By Rich Smith - Jan 7, 2021 at 5:27PM

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Citi sees CES as a positive catalyst for NVIDIA shares.

What happened

Joining a broad-based stock rally that saw the tech-heavy Nasdaq gain 2.6% by the closing bell, NVIDIA ( NVDA -2.14% ) stock rose by 5.8% in trading Thursday. And in contrast to many other stocks that joined in with the day's upward move, there was a company-specific reason for investors to be optimistic about NVIDIA.

That reason was named Citigroup.

Glowing semiconductor chip

Image source: Getty Images.

So what

Early Thursday morning, Citi said it was putting NVIDIA shares on a "positive catalyst watch," noting that the 2021 Consumer Electronics Show will get underway on Monday, and that demonstrations of NVIDIA products at the annual trade show could give investors new reasons to buy the stock.

"Hyperscale-led data center" buying of semiconductors, related TheFly.com in its write-up of Citi's note, could also boost demand for NVIDIA products in the first half of 2021. At the same time, supply constraints for graphics processing units (GPUs) for gaming consoles (which have been in high demand throughout the pandemic) should give NVIDIA pricing power and potentially create "upside to near-term Street estimates" for the stock.

Now what

That's a pretty impressive prediction, given that the analyst estimates Citi now thinks may be too conservative are already calling for NVIDIA to grow sales by 55% year over year to $4.8 billion, and to grow its earnings by 48% in the January quarter to $2.80 per share.

Granted, even if NVIDIA hits its estimates, at a share price of nearly $534 today, that would work out to a price-to-earnings ratio of nearly 55. That sounds high, but if the tech company can maintain anything like the 55% growth rate that analysts are projecting -- or even exceed it, as Citi seems to be saying it might -- then even 55 times earnings might not be too much to pay for NVIDIA stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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