Nvidia, a leading technology company, is receiving a slew of price-target upgrades from Wall Street analysts in anticipation of its upcoming earnings report. This surge in optimism is mainly attributed to the strong demand for Nvidia's chips in the data-center sector, as well as orders from Chinese companies and future orders from the automotive industry.
Back in May, Nvidia's earnings beat was primarily driven by robust data-center revenue, establishing them as the frontrunner in the AI technology boom. Analysts, such as those at Piper Sandler, are confident that Nvidia's performance in this segment will continue to impress.
"We expect NVDA to surpass expectations across the board for the July quarter, including EPS and revenue projections for the October guidance," stated Harsh Kumar of Piper Sandler.
Kumar further predicts that Nvidia's data-center revenue will skyrocket by 78% in the July quarter compared to the previous quarter, reaching an impressive $7.6 billion. He also forecasts it to climb even higher to $9.5 billion for the October quarter.
In light of these promising prospects, Kumar raised his target price for Nvidia from $450 to $500 and maintained an Overweight rating on the stock. As of Wednesday's premarket trading, Nvidia shares were up by 0.7% and valued at $442.30.
Nvidia Benefits from Rising Demand in China
Nvidia is experiencing a surge in orders for its graphics-processing units (GPUs) from Chinese companies, driven by concerns over stricter export restrictions imposed by the U.S. government. As these pressures intensify and restrictions on China become more severe in the near term, Nvidia's backlog is expected to continue growing as Chinese firms place more orders.
Automotive Industry Partnership Spurs Revenue Growth
Additionally, analysts are identifying the automotive industry as a significant source of extra revenue for Nvidia. The company has established partnerships with established automobile manufacturers such as Mercedes-Benz Group and Tata Motors' Jaguar Land Rover. Analyst Srini Pajjuri from Raymond James sees an inflection point in 2024 as revenue-sharing agreements with Mercedes and JLR start to gain traction. Recent comments from Mercedes suggest that Nvidia could potentially seize a $1-3 billion software opportunity by mid-decade.
Revised Target Price and Rating
Pajjuri has raised his target price for Nvidia to $500 from $450, while reaffirming a Strong Buy rating. This new target price is based on a price-to-earnings multiple of 40 times Nvidia's projected 2025 earnings.
In conclusion, Nvidia is benefiting from increased demand in China and its strategic partnerships in the automotive industry, positioning the company for sustained growth in the coming years.
