RBC: Nvidia's crypto boost is facing a 'notable slowdown' — but its stock could still surge (NVDA)

pulse

March 14, 2018 1:02 PM

Still, the bank is raising its price target for the chipmaker citing tax reform and video games

Still, the bank is raising its price target for the chipmaker citing tax reform and video games.

Nvidia got a major boost from the explosion of interest around cryptocurrencies in 2017, but that's facing a "notable slowdown," RBC Capital Markets has warned.

"With crypto currencies acting as a boost in FY18E, we take a conservative approach and assume that a notable slowdown occurs in FY19E," analyst Mitch Steves said in a note to clients Wednesday. "Higher end chips typically lead to better mining capabilities and the lower end products will unlikely sell out consistently."

At the height of the crypto boom in December, when the price of bitcoin was near $20,000 a coin, Nvidia’s chips were regularly selling out at stores across the country. Once popular almost exclusively among PC gamers, the chips had found a new market that was insatiable in the demand for mining equipment.

Still, other solid signs under the surface led RBC to upgrade its price target for the stock by another $5 a share, to $285, a 15% premium to the stock’s price of $249 early Wednesday.

"We are raising our price target on Nvidia to reflect 1) new upside case scenario of $12+ in FY21E EPS, 2) confidence in Data Center spending given positive results across major data center players and continued strong demand for memory, 3) solid gaming results driven by pent up demand and new video games requiring a doubling in size and 4) higher long-term gross margin expectations for Pro Visualization and Gaming," Steves wrote.

Gaming, specifically, is a major highlight for RBC, which says “VR units could become more material in 2019 if content is created over the next 12-18 months,” something other Wall Street analysts have also predicted.

Earlier this week, Jefferies said both Nvidia and AMD could see a boost from Steven Spielberg's "Ready Player One," which features an entire virtual reality universe inside the futuristic movie.

Shares of Nvidia are up 23.4% this year, even as the price of bitcoin has fallen 25%.

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