Yahoo Finance Nvidia Corporation (NVDA) Stock Upgraded on Machine Learning Optimism
Nvidia Corporation (Nasdaq: NVDA) stock tumbled 9 percent in the past month on fears that cryptocurrency mining demand for graphics cards is dropping. Despite a challenging cryptocurrency market, Morgan Stanley has upgraded Nvidia stock from "equal weight" to "overweight" and says strength in the company's machine learning business is more than enough to offset short-term crypto weakness.
According to analyst Joseph Moore, cryptocurrency mining accounted for a relatively small 5 percent of Nvidia's total revenue last quarter. That revenue has been high-margin as well given the GPU shortages cryptocurrency demand created last year.
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Moore expects Nvidia's cryptocurrency mining revenue will fall near zero in the July quarter, especially after Bitmain recently announced a new application-specific integrated circuit designed specifically for cryptocurrency mining.
"Historic cadence suggests that new gaming products should be coming in the July quarter timeframe, which should reduce resale risk and drive incremental demand," Moore says.
Moore also says there is likely pent-up demand for NVDA chips from gamers who were unable to purchase chips in the past year due to the shortages.
Evercore ISI analyst C.J. Muse also says Nvidia investors shouldn't sweat a decline in cryptocurrency demand.
"Our sense is that crypto is 5 percent of overall revenues and with a new gaming GPU (called 'Turing') launch cycle ramping in [the second half of 2018], we believe NVDA will likely power through any tough compares from crypto-driven tailwinds (though exact numbers are difficult to know for sure in crypto)," Muse says.
For longer-term investors, Moore says artificial intelligence, machine learning and big data are all much more relevant for Nvidia investors.
Nvidia has been the market leader in developing machine learning databases, and Moore says the company is well-positioned in the next-generation of machine learning development as well. He says "Inference," the process of using databases for real-time identification, is a major long-term growth opportunity.
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"As Nvidia's footprint continues to expand, it's increasingly clear that all roads lead back to Nvidia as the most direct beneficiary of trends in machine learning," Moore says.
In addition to the "overweight" rating, Morgan Stanley has a $258 price target for Nvidia. Evercore ISI has an "outperform" rating and $275 target for NVDA stock.
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