Nvidia stock defied crypto worries today, closing 3.2% higher after analysts at New Street Research upgraded the shares to a buy rating with a $270 price target.
The analyst firm cited Nvidia’s strong position in the gaming market and its growing data center business as key reasons for their bullishness on the stock. They also believe that any weakness in the cryptocurrency market is likely to be temporary and that Nvidia is well-positioned to benefit from any rebound in prices.
This positive news comes as a relief to investors who have been worried about the impact of the declining cryptocurrency markets on Nvidia’s business. While the company has acknowledged that crypto was a significant driver of its growth last year, it has also said that it is not overly reliant on the sector and that its core businesses are doing well.
What happened
Nvidia (NASDAQ: NVDA) shares rose 2.6% by 3:15 p.m. EDT on Tuesday, while most other chip stocks were down on the day. The rally came even as the cryptocurrency market fell sharply again, with Bitcoin (BTC-USD) tumbling below $9,000 and Ethereum (ETH-USD) falling below $700.
The cryptocurrency sell-off has been driven by a number of factors in recent days, including increasing regulation from governments around the world and concerns about the sustainability of Bitcoin’s recent rally. However, Nvidia has proven relatively resilient to the crypto market’s woes in recent months.
Why it happened
Nvidia’s strong performance today is likely due to a combination of positive analyst commentary and an upgrade to the stock from Goldman Sachs.
On the analyst front, Stifel Nicolaus issued a bullish note on Nvidia this morning, arguing that the company’s gaming business is “poised for significant growth” in the second half of 2018. The firm also sees Nvidia benefiting from continued strength in its data center business, as well as upside from its new Turing-based graphics cards. Stifel Nicolaus maintained its buy rating and $300 price target on Nvidia stock.
Meanwhile, Goldman Sachs raised its rating on Nvidia to buy from neutral this morning and boosted its price target to $290 from $270. The firm sees Nvidia’s gaming business as being “well-positioned” for the second half of 2018, and also thinks that the company’s data center business could see “significant” growth in the coming quarters. Goldman Sachs’ new price target represents nearly 30% upside from current levels.
What comes next?
Nvidia stock has pulled back sharply from its all-time highs in recent months, but it still looks reasonably valued at around 27 times forward earnings. And with analyst expectations for strong growth in both the gaming and data center businesses in the second half of 2018, Nvidia shares could have more room to run even if the cryptocurrency market remains under pressure.
Finally, some investors believe that Nvidia’s stock is undervalued at current levels, making it an attractive buying opportunity even after its recent rally.
Overall, the combination of Nvidia’s strong fundamentals and diversified business model make it a relatively safe bet compared to other stocks in the tech sector. This has allowed the stock to hold up better than most during periods of market turmoil like we’re seeing today.
