Nvidia rises as analysts highlight upcoming catalysts despite PC, gaming weakness

Semiconductor Maker Nvidia Reports Quarterly Earnings

Justin Sullivan

Nvidia (NASDAQ:NVDA) shares erases earlier losses and gained more than 2% in early trading on Thursday after the semiconductor giant said that weakness in the gaming and PC markets would continue in the third quarter and it was working to reduce inventory levels.

However, analysts noted that there are several upcoming catalysts for Nvidia’s (NVDA) stock.

Citi analyst Atif Malik noted that gaming growth is expected to return as it releases new products later this year.

Malik said that while investors would have liked Nvidia (NVDA) to have guided down on its data center business in order to lower the risks associated with related enterprise weaknesses, “We expect gaming sequential growth to resume in the [January quarter],” as Nvidia comes out of an inventory correction ahead of the launch of its new Ada Lovelace product. Malik added that the ramp up of Nvidia’s (NVDA) Hopper data center products “remains largely on track.”

Malik has a buy rating on Nvidia’s (NVDA) stock, but lowered his price target to $248 a share from $285 following the quarterly results.

As Nvidia (NVDA) shares rose, competitors Advanced Micro Devices (AMD) and Marvell Technology (MRVL) also traded higher. Marvell (MRVL) is set to report quarterly results after the close of trading.

Several other semiconductor stocks also moved higher on Thursday, including Intel (INTC), Texas Instruments (TXN), Analog Devices (ADI) and ON Semiconductor (ON).

Despite the weakness over the next few quarters, Malik noted that Nvidia’s (NVDA) GTC conference on September 20 should be a catalyst for the company, as there are expectations for new gaming products, something Chief Executive Jensen Huang alluded to on the earnings call.

“The fundamentals of gaming are strong,” Huang said on the call. “We’ll get through this over the next few months and go into next year with our new architecture.” Huang said he would have more details about Nvidia’s (NVDA) gaming efforts at its GTC conference next month.

Mizuho analyst Vijay Rakesh also has a buy rating on Nvidia (NVDA) and lowered his price target to $225 a share from $250 following the results. However, Rakesh pointed out that the Nvidia’s (NVDA) report was “in line” with its pre-announcement and continued strength in the data center should ease concerns over short-term gaming weakness. Nvidia (NVDA) issued a preliminary report concerning its second-quarter results earlier this month.

“We still see [Nvidia] well positioned,” Rakesh said, adding that the company remains dominant with its artificial technology offerings, and what he estimates is greater than a 95% market share in graphics processing unit [GPU] training hardware and software.

KeyBanc Capital analyst John Vinh, who rates Nvidia (NVDA) overweight with a $230-a-share price target, noted that while the second-quarter results were in-line with the pre-announcement and guidance for the next quarter was soft, it can be viewed as a “clearing event.”

Vinh said that Nvidia’s (NVDA) data center and automotive sales continue to grow, while inventory charges indicate a moderation in data center growth expectations related to its prior-generation Ampere chipsets, “and expectations for next-gen Hopper remain high.” Vinh added that Nvidia’s (NVDA) guidance further lowers upcoming expectations.

Last week, Bank of America said another guide-down from the Jensen Huang-led Nvidia (NVDA) might result in a “necessary reset” as it gets ready to launch its 5-nanometer line of products.

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