On Thursday, CFRA, a renowned financial research firm, increased its price target for NVIDIA (NASDAQ:NVDA), a leading technology company, to $840 from the previous $700 while maintaining a Buy rating on the stock. This adjustment follows NVIDIA's impressive earnings report, which exceeded analysts' expectations.
NVIDIA reported earnings per share (EPS) of $5.16 for the January quarter, surpassing the consensus estimate of $4.64. This figure represents a significant increase from the $0.88 EPS reported in the same quarter of the previous year. Sales during this period soared by 265%, driven by a remarkable 409% increase in data center revenue, which now accounts for 83% of NVIDIA's total sales.
The company's financial success is attributed to substantial growth in both compute revenue, which expanded over five times, and networking, which tripled, achieving an annual run rate of $13 billion. Despite these gains, NVIDIA anticipates potential supply constraints as it prepares to launch next-generation products, including the H200 in the April quarter and Blackwell by the end of the year, due to high demand.
While NVIDIA's sales in China experienced a significant decline, CFRA believes this could reduce the risk to the company's revenue stream, noting that data center sales in China now represent a mid-single percentage compared to the historical range of 20%-25%. Looking ahead, CFRA projects strong demand for NVIDIA's offerings in the 2024 and 2025 calendar years, supported by total addressable market (TAM) expansion opportunities, such as Sovereign AI and AI factories, new product launches at higher price points, and growing software momentum.
CFRA also anticipates that NVIDIA will maintain a sustainable gross margin in the mid-70's percentage range. Furthermore, the firm estimates that NVIDIA will generate over $100 billion in free cash flow (FCF) over the next two years, with approximately $45 billion in fiscal year 2025 and $55 billion in fiscal year 2026. These projections are based on the company's robust financial performance and strategic growth drivers.
InvestingPro Insights
Amidst the optimistic projections by CFRA, NVIDIA (NASDAQ:NVDA) also showcases strong fundamentals and market performance as reflected in real-time data and analysis from InvestingPro. A noteworthy InvestingPro Tip highlights NVIDIA's perfect Piotroski Score of 9, indicating top-notch financial health. Moreover, analysts are not only expecting net income to grow this year but have also revised their earnings upwards for the upcoming period, reinforcing the company's growth trajectory.
From the InvestingPro Data, NVIDIA maintains a robust Revenue Growth of 57.07% over the last twelve months as of Q3 2024, underlining the company's significant sales expansion. Furthermore, the company's Gross Profit Margin stands at an impressive 69.85%, showcasing its ability to retain a substantial portion of sales as gross profit. Despite trading at a high Price / Book multiple of 50.1, NVIDIA's PEG Ratio of 0.4 suggests that the stock may be undervalued relative to its earnings growth prospects.
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