Nvidia stock forecast 2021: will the share price continue to set new highs?
16:09, 20 November 2020
Shares in US chipmaker Nvidia (NVDA) have soared by 124 per cent since the start of the year as changes in the technology industry are driving computing demand.
After such strong gains, is Nvidia stock a buy now or has the rally run its course? What do the latest reports from analysts indicate?
This Nvidia stock analysis looks at the latest performance of the share price and its outlook heading into the next year.
The semiconductor industry today: changing demand trends boost share prices
The chip manufacturing industry is on the verge of a step up in demand from new technology trends. The adoption of Internet of Things (IoT) devices, advanced gaming services and artificial intelligence (AI) capabilities increased requirements for data centre capacity to handle internet traffic, and new automotive features all require advanced semiconductor chips.
Semiconductor stocks have risen in line with the massive gains across the technology sector in 2020, with the Nasdaq US Smart Semiconductor Index trading up by 31 per cent year to date and 114 per cent since the start of 2019. The Index includes companies such as AMD (AMD), Broadcom (AVGO), Intel (INTC) and Qualcomm (QCOM), as well as Nvidia. The overall Nasdaq 100 (US 100) technology index has similarly risen by 35 per cent so far this year.
So, what impact are the industry trends having on the latest Nvidia stock projection?
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Everything you need to know: stock performance, Q3 earnings report, Covid-19 challenges and rising opportunities
Nvidia shares started 2020 at just under $240 per share, dropping to the $196 level in March before rebounding and accelerating to all-time highs. The stock reached an intra-day record of $589 per share in early September.
Nvidia earnings showed that the Covid-19 pandemic has affected the company’s various business units in different ways, with new video gaming chips and a rise in internet data processors required during lockdowns more than offsetting lower demand for office applications and automotive technologies.
The third-quarter Nvidia earnings report boasted a 57 per cent year-on-year rise in revenue to a record $4.73 billion, with gaming revenue up by 37 per cent to $2.27 billion and data centre revenue jumping by 162 per cent to $1.90 billion. The company issued revenue guidance for the fourth quarter of $4.8 billion, which would be up 54 per cent from $3.11 billion recorded in the fourth quarter of last year.
Revenue in the company’s Professional Visualisation business fell by 27 per cent year on year to $236 million, as Covid-19 reduced demand for desktop workstations, although it was up by 16 per cent from the second quarter on a “sharp rebound in mobile workstations due to work from home trends,” the company said.
Automotive revenue was down by 23 per cent from a year earlier to $125 million and up by 13 per cent from the previous quarter, as a decline in revenue from legacy infotainment modules and autonomous driving development agreements offset higher sales of AI solutions.
Colette Kress, Nvidia’s executive vice president and chief financial officer, said: “Covid-19 continues to affect our business in both positive and negative ways, although there is uncertainty around their duration and impact.”
“Our Gaming and Data Centre market platforms have benefited from stronger demand as people continue to work, learn, and play from home. In Professional Visualisation, stronger demand for mobile workstations due to work-from-home trends was partially offset by lower demand for desktop workstations. In Automotive, customers’ production volumes have largely returned to pre-Covid levels. In our supply chain, stronger demand globally has limited the availability of capacity and components.”
During the third quarter, Nvidia agreed to acquire UK-based chip designer Arm from Japan’s SoftBank Capital for $40 billion to strengthen its AI computing platform. The transaction is expected to close in the first quarter of 2022. The company also announced plans to build an AI lab in Cambridge, UK where Arm is based – including an AI supercomputer based on Nvidia and Arm technology. And it plans to build a separate AI supercomputer in the UK for research in healthcare and drug discovery.
During the second quarter, Nvidia completed the $6.9 billion acquisition of Mellanox, which makes interconnect chips, to optimise its data centre offering. Mellanox revenue declined in the third quarter because of a US government ban on selling chips to Chinese telecom equipment producer Huawei Technologies and supply shortages.
What impact has the company’s recent performance had on the Nvidia share price forecast from analysts? And what should you do next with Nvidia shares: buy or sell?
We explain how you can profit from the stock regardless of the direction of the share price.
Nvidia stock forecast 2021: earnings outlook lifts analyst price targets
At least 11 equities analysts boosted their price targets for the stock on November 19 in response to the strong earnings report. The Nvidia share forecast range shifted from $500-650 per share to $520-665 per share with the likes of Citigroup, Bank of America, UBS and Barclays raising their price targets.
Analysts at Raymond James lifted their Nvidia stock forecast to $600 from $550 and reiterated their outperform rating in response to the company’s quarterly results. The analysts stated: “NVDA posted a strong quarter and guidance, beating guidance for 3Q meaningfully, mainly on the back of very strong gaming revenue associated with their new product ramp. 4Q guidance is also well above expectations, though it will be a 14-week quarter. The benefit of that extra week is however debatable, since the company remains supply-constrained on both gaming and data centre products.”
They added: “We’ve also heard some investor concern that Mellanox revenue is expected to decline Q/Q in 4Q due to Huawei, but we consider that to be simply noise.”
Analysts at Bernstein raised their Nvidia stock price forecast to $575 from $545, with an outperform rating. “The company continues to over-deliver on both key segments even in the midst of a pandemic, continued supply constraints, and potential data centre digestion environment.”
What is your view now, is NVDA stock a buy or sell?
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