Shares of Nvidia (NVDA -0.08%) had a bit of a tailwind to start Wednesday, jumping as much as 3.3%. As of 11:08 a.m. ET, however, the stock was down 0.8%, caught in the general market downdraft.
The catalyst that initially sent the semiconductor giant higher was bullish commentary by an analyst.
Bank of America analyst Vivek Arya painted a compelling picture for Nvidia's future prospects, reminding investors there's still robust demand for the company's graphics processing units (GPUs), as plenty of gamers have yet to adopt the latest version of its high-end processors.
The analyst noted that the graphics chip market is "still early in [the] upgrade cycle," which could result in stronger demand in the second half of 2022 as supply chain issues abate and the mix of processors improves. Arya also pointed out that the gaming market closed out the calendar year "strong," but he believes heavy demand will continue.
Still, Arya said penetration of Nvidia's latest Ampere generation, which has an average selling price of $475 (15%-80% above the prior generation), is still just 15% of total Nvidia gamers, according to Steam's January hardware survey. He went on to say there was still plenty of opportunity for improved product mix as gamers continue to upgrade to the latest generation of processors.
A number of high-demand gaming chips are still sold out, as they work their way through the supply chain. At the same time, these processors are currently selling at roughly twice their recommended price, suggesting gamers will buy the chips as soon as they become available.
Arya pointed to Nvidia's fourth-quarter results as evidence of the tailwinds, and the strong results support his assertion.
The company generated record quarterly revenue of $7.64 billion, which climbed 53% year over year, driven by record-setting sales in the gaming, data center, and professional visualization segments. This exceptional demand boosted the bottom line, as earnings per share of $1.18 surged 103%. Management is also guiding for year-over-year revenue growth of 43% in the first quarter.
Nvidia stock has gotten caught up in the tech-related sell-off, down more than 30% from its recent high, so investors are getting all of this growth at a discount.