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Why Nvidia Stock Is Hopping Today

By Rich Smith – Aug 20, 2021 at 10:36AM

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Nvidia's earnings were on fire this week, and Wall Street noticed.

What happened

Shares of Nvidia (NVDA -1.58%), which makes semiconductors used in video games, cryptocurrency mining, and artificial intelligence, jumped 3% through 10:15 a.m. EDT Friday.

You can thank the friendly analysts at Benchmark Capital for that. 

Glowing semiconductor chip

Image source: Getty Images.

So what

Benchmark initiated coverage of Nvidia stock with a buy rating and a $230 price target -- 13% higher than where the stock trades now -- this morning, praising the company's performance in Wednesday's earnings release.

Nvidia reported a 68% surge in sales to $6.5 billion for its fiscal second quarter of 2021, with data center sales up 35% and gaming chips doing even better -- up 85%. Adjusted earnings per share climbed 89% to $1.04, while earnings calculated according to generally accepted accounting principles (GAAP) did both worse and better. On an absolute basis, GAAP profits were $0.94, so less than adjusted earnings. However, GAAP earnings soared 276% relative to last year's Q2.  

Now what

In its note, Benchmark called Nvidia's performance "solid." More importantly, the analyst says there is "plenty of opportunity for growth" ahead, especially in the data center and gaming businesses where Nvidia showed so much strength in Q2.

It's hard to disagree with the analyst on any of those points, and indeed, most analysts agree that Nvidia should be able to keep growing earnings at nearly 33% a year over the next five years. My only real question is: Is 33% growth fast enough to justify the stock's 69.5 price-to-earnings ratio?

Because as a value investor, I kind of worry that it isn't.

Rich Smith 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.

Stocks Mentioned

Nvidia Stock Quote
$166.10 (-1.58%) $-2.66

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