Most Wall Street analysts believe you are wrong, if you believe Nvidia Corp.’s results are a good reason to sell the stock.
The graphics chip maker beat profit and sales expectations by wide margins, and raised its revenue outlook for the year, when it reported fiscal second-quarter results late Thursday.
But after a very brief burst higher, the stock
turned sharply lower in after-hours trade. The stock slumped 5.3% Friday, as investors appeared to view the results as not good enough to justify the 30% rally the stock had enjoyed the three months leading up to earnings.
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Most analysts disagree with investors’ reaction, as 21 of the 37 analysts surveyed by FactSet raised their stock price targets after the results, while one cut their target.
Analyst William Stein at SunTrust Robinson Humphrey raised his stock price target to $181, which is 15% above current levels, from $177.
“Buy this dip,” Stein wrote in a note to clients. “We understand the selloff, but take the other side of that trade.”
He believes investors were disappointed that the Nvidia reported the “wrong kind” of beat, as it was more the result of strength in sales to cryptocurrency miners and less about datacenter and artificial intelligence-related sales. Stein pointed out, however, that even excluding cryptocurrency-related sales, “the beat was robust.”
See also: Nvidia more bullish on cryptocurrency than AMD.
Raymond James’ Chris Caso boosted his target to $180 from $175 on the “strong beat and raise.” He said that while investors may be disappointed in the nature of the beat, he doesn’t believe Nvidia’s premium multiple is being driven by its cryptocurrency or gaming business anyway.
He wrote that “there’s nothing in the report that changes our mind regarding strong datacenter growth going forward, and numbers do move meaningfully higher on GPU estimates, thus helping the stock’s valuation.”
The average analyst price target has increased to $155.69, according to FactSet, from $142.63 on July 31. The average rating is the equivalent of overweight.
Meanwhile, Susquehanna Financial analyst Christopher Rolland kept his rating at $140, and his rating at neutral, suggesting that given the “significant stock outperformance into the print,” the post-results selloff appears to be justified.
While Nvidia’s stock has run up 23.3% in the past three months through Friday, shares of rival Advanced Micro Devices Inc.
have climbed 10.5%, the PHLX Semiconductor
has edged up 2.3% and the S&P 500 index
has tacked on 2.0%.
“It was a good quarter, but not perfect…it needed to be perfect,” Rolland wrote in a note.