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What happened
Actions of Nvidia (NASDAQ: NVDA), which makes semiconductors used in video games, cryptocurrency mining and artificial intelligence, jumped 3% until 10:15 a.m. EDT on Friday.
You can thank the nice analysts at Benchmark Capital for that.
Image source: Getty Images.
So what
Benchmark launched Nvidia stock hedging with a buy rating and a target price of $ 230 – 13% above the current stock price – this morning, praising the company’s performance in the publication of results on Wednesday.
Nvidia announced a 68% increase in sales to $ 6.5 billion for its second fiscal quarter 2021, with data center sales up 35% and gaming chips doing even better – up 85 %. Adjusted earnings per share climbed 89% to $ 1.04, while earnings calculated under generally accepted accounting principles (GAAP) did both worse and better. On an absolute basis, GAAP earnings were $ 0.94, which is lower than adjusted earnings. However, GAAP profits climbed 276% from the second quarter of last year.
Now what
In its memo, Benchmark called Nvidia’s performance “solid”. More importantly, the analyst says there are “plenty of growth opportunities” ahead, particularly in the data center and gaming businesses where Nvidia showed such strength in the second quarter.
It’s hard to disagree with the analyst on any of these points, and indeed, most analysts agree that Nvidia should be able to continue to grow profits at nearly 33% per annum over the course of over the next five years. My only real question is, is 33% growth fast enough to justify the price-to-earnings ratio of 69.5?
Because as a value investor, I’m worried that this is not the case.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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