“Armchair Trader Series” Recommendations
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Monday, September 24, 2018

by Ian Harvey

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Option Trade – NVIDIA Corporation (NASDAQ:NVDA) Calls

Wednesday, September 26, 2018

** OPTION TRADE: Buy the NVDA NOV16 2018 280.000 CALL at approximately $8.50 TO $9.00. Place a pre-determined sell at $17.00.

Also include a protective stop loss of $3.40.

The maker of graphics and high-performance computing chips NVIDIA Corporation (NASDAQ:NVDA) is one of the bull market’s biggest winners. After last month’s earnings release, there was a quick dip and then great movement to new all-time highs. However, since then NVDA stock has returned to the scene of its breakout. This provides us with another great opportunity to profit from Nvidia sitting near its old resistance point.

Nvidia closed at $268.41 in the latest trading session, marking a +0.92% move from the prior day. This move outpaced the S&P 500's daily loss of 0.13%. At the same time, the Dow lost 0.26%, and the tech-heavy Nasdaq gained 0.18%.

Prior to yesterday’s trading, shares of the maker of graphics chips for gaming and artificial intelligence had lost 3.7% over the past month. This has lagged the Computer and Technology sector's gain of 0.35% and the S&P 500's gain of 1.71% in that time.

But, year-to-date, shares of NVIDIA, which have rallied about 38 percent year-to-date, have additional runway for upside ahead, according to Bank of America Merrill Lynch. The firm raised its price target for Nvidia shares only a day after reiterating the figure.

Vivek Arya reiterated a Buy rating on Nvidia and named it as the top sector pick. The analyst raised the price target from $340 to a Street high of $360, suggesting roughly 36-percent upside from current levels.

The revision reflects a roll forward to 32 times calendar 2020 EPS estimates.

Nvidia's new Turing GeForce RTX architecture simultaneously supports high-end gaming, AI and pro-viz features in the same chip, the first of its kind, driving significant upside in multiple segments, Arya said in a Tuesday note.

The Street might be underestimating Turing's multipronged capability relative to the primarily gaming-only focus of Pascal in 2016, the analyst said.

BofA expects Turing to boost ASP across every price point of the gaming stack, Arya said.

Pro Viz, Turing's photoreal rendering, is a $1.5 billion opportunity, in BofA's view. The sell-side firm expects Turing-based Quadro cards to drive a 15-20 percent-plus annual growth rate in the Pro Viz segment compared to 8-9-percent growth in the consensus estimate.

Nvidia "already dominates the AI training market, but with the new Turing T4, it is also building a moat in the relatively untapped $20-billion market for inference accelerators," Arya said.

Past Performance…..

Financial performance is quite remarkable. The company has delivered booming revenue growth over the past five years, while profit margins have enlarged. Rapidly growing sales in combination with expanding profit margins have provided a double boost to earnings per share over time.

The most recent earnings report from Nvidia confirms that the business keeps growing at full-speed as of the quarter ended on July 29, 2018. Total revenue amounted to $3.12 billion during the quarter, growing by 40% versus the same quarter in the prior year. Non-GAAP earnings per diluted share were $1.94, up by 92% percent from $1.01 a year earlier.

Future Earnings…..

NVDA is expected to report its next earnings on November 8, 2018. In that report, analysts expect NVDA to post earnings of $1.93 per share. This would mark year-over-year growth of 45.11%. The most recent consensus estimate is calling for quarterly revenue of $3.25 billion, up 23.45% from the year-ago period.

NVDA's full-year Consensus Estimates are calling for earnings of $7.96 per share and revenue of $13.02 billion. These results would represent year-over-year changes of +61.79% and +34.06%, respectively.

Influencing Factors…..

In August, Nvidia announced its new eighth-generation Turing graphics architecture. Last week the first gaming cards based on Turing became available.

NVIDIA's video gaming and data center businesses led to massive top- and bottom-line growth last quarter, but there was another positive development that went under the radar. The graphics specialist's professional visualization business has started showing signs of life after failing to take off in recent quarters.

It won't be surprising if this segment starts playing a bigger role for NVIDIA given the company's recent product development moves.

The global VR content creation market is growing at almost 90% a year. This means that demand for the hardware needed to create that content is also growing.

NVIDIA's professional visualization (pro-v) revenue jumped nearly 20% year over year during the second quarter, following a 22% annual increase during the first one. A longer-term look shows the pro-v business has been gaining momentum over the past year, indicating that the Quadro graphics cards are finally finding some traction.

Moving Ahead…..

Nvidia's stock is outperforming both the SPDR S&P 500 (SPY) and the VanEck Vectors Semiconductor ETF (SMH) on a year-to-date basis. The stock is displaying outstanding relative strength in comparison to both the market in general and the industry in particular, and this bodes well for investors in Nvidia stock going forward.

It won't be surprising if NVIDIA manages to maintain this momentum as it will soon launch new and more powerful professional graphics cards based on the latest Turing architecture.

NVIDIA's latest Quadro GPUs could be a game-changer thanks to the technology they are packing. Of course, they perform faster and consume less power than the previous-generation offering. But the biggest highlight of the new professional-grade graphics cards is that they come with ray-tracing, a rendering technology that can produce life-like graphics with attention to details such as reflections and shadows.

NVIDIA says that this is the first time that a GPU is capable of ray-tracing, and that could be a solid plank on which the company can market the new cards. NVIDIA claims that "designers and artists can interact in real time with their complex designs and visual effects in ray-traced photo-realistic detail" thanks to this new technology.

Analysts and Hedge Funds Opinions

Besides Bank of America Merrill Lynch $360.00 price target, analysts at KeyCorp initiated coverage on shares of NVIDIA in a research report issued to clients and investors on Tuesday. The firm set a “sector weight” rating on the computer hardware maker’s stock.

Also, NVIDIA had its target price hoisted by research analysts at Needham & Company LLC from $325.00 to $350.00 in a research report issued on Friday, September 14th. The brokerage presently has a “buy” rating on the computer hardware maker’s stock. Needham & Company LLC’s target price points to a potential upside of 32.85% from the company’s previous close.

Several other equities analysts have recently commented on the company…..

  • UBS Group upgraded shares of NVIDIA from a “market perform” rating to an “outperform” rating in a report on Friday, August 17th.
  • BidaskClub upgraded shares of NVIDIA from a “buy” rating to a “strong-buy” rating in a research note on Saturday, August 25th.
  • Oppenheimer upgraded shares of NVIDIA from a “market perform” rating to an “outperform” rating and set a $310.00 price objective on the stock in a research note on Friday, August 17th.
  • Goldman Sachs Group raised their price target on shares of NVIDIA from $310.00 to $324.00 and gave the stock a “buy” rating in a research note on Tuesday, August 7th.

Nine investment analysts have rated the stock with a hold rating, twenty-five have assigned a buy rating and one has assigned a strong buy rating to the company. The stock has an average rating of “Buy” and an average target price of $299.65.

Summary

Nvidia has benefited tremendously from the growing demand for GPUs in the gaming industry over the past several years. In addition to this, computing is becoming increasingly more visual in all kinds of areas, which is providing a strong tailwind for GPUs.

Management has played its cards well, positioning the company for growth in areas with massive potential for expansion in the years ahead. Artificial intelligence and deep learning applications that use the company’s graphics chips are particularly promising, and Nvidia is betting on autonomous vehicles with its Drive PX self-driving platform.

NVIDIA stock traded up $2.71 during midday trading on Tuesday, hitting $268.41. The company’s stock had a trading volume of 7,023,700 shares, compared to its average volume of 12,809,516. The company has a current ratio of 7.41, a quick ratio of 6.66 and a debt-to-equity ratio of 0.23. NVIDIA Co. has a 12 month low of $170.35 and a 12 month high of $285.22. The stock has a market cap of $160.18 billion, a PE ratio of 57.49, a price-to-earnings-growth ratio of 3.45 and a beta of 1.62.






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