On Monday, Needham, a notable investment firm, increased its price target for NVIDIA Corporation (NASDAQ:NVDA) shares to $850, up from the previous $600, while reaffirming its Buy rating on the stock. The adjustment follows NVIDIA's recent financial performance, which exceeded the market's high expectations.
NVIDIA's latest earnings report revealed a substantial outperformance, prompting Needham to revise its outlook. The firm highlighted several key points driving its positive stance, including the ongoing imbalance between supply and demand. NVIDIA's supply is growing, yet demand still outstrips supply, indicating that new products may face supply constraints into calendar year 2025.
The report also noted that inferencing products now make up 40% of NVIDIA's total data center revenue. Customers, particularly Cloud Service Providers (CSPs), are prioritizing system utilization, often repurposing GPUs from Training to Inferencing, which complicates efforts to estimate the final usage of the products.
Despite a decrease in revenue from China to a mid-single-digit percentage of data center revenue, NVIDIA managed to deliver better-than-expected results. Needham suggests that after the first quarter of fiscal year 2025, China could become a potential source of additional revenue for NVIDIA.
Furthermore, Needham anticipates NVIDIA's gross margins will recover to the mid-70% range after the first quarter of fiscal year 2025 as component costs stabilize. The firm also expects new product launches and increased high-bandwidth memory (HBM3e) content to contribute to NVIDIA's growth.
The raised price target to $850 is based on approximately 30 times Needham's new calendar year 2025 earnings per share (EPS) estimate of $28.50 for NVIDIA. This optimistic projection reflects the firm's confidence in NVIDIA's continued growth and ability to overcome current market challenges.
InvestingPro Insights
NVIDIA Corporation's (NASDAQ:NVDA) recent financial performance has not only caught the attention of Needham but also aligns with several positive indicators from InvestingPro. According to real-time data, NVIDIA's market capitalization stands at a robust $2.22 trillion, reflecting its significant presence in the market. The company's impressive revenue growth of 125.85% over the last twelve months as of Q4 2024, alongside a gross profit margin of 72.72%, underscores its financial health and efficiency in generating income relative to its revenue.
InvestingPro Tips suggest that NVIDIA is a prominent player in its industry, with analysts expecting the company to maintain profitability this year, as evidenced by 31 analysts revising their earnings upwards for the upcoming period. Additionally, despite trading at a high earnings multiple with a P/E ratio of 75.13, NVIDIA's PEG ratio of 0.13 suggests that its earnings growth rate could justify the higher P/E ratio in the near term.
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