NVIDIA: Zacks’ Bull of the Day Play

I last wrote about NVIDIA (NVDAFree Report) as the Bull of the Day in mid-August when you could still scoop shares near $60. Before that, I was recommending shares under $30 in January when its emerging earnings momentum made it a compelling combination of growth and value in technology.

Since then, the specialty semiconductor graphics company delivered another blowout quarter of results that have driven shares above $90, and reinstalled the stock as a fixture in the top tier of the Zacks Rank as a #1 Strong Buy.

Earnings Stunner

On November 10, NVIDIA reported record quarterly revenue of $2 billion, up 54% from a year ago, and up 40% from $1.43 billion in the previous quarter.

The company also delivered record GAAP EPS of $0.83, up 89 percent from a year ago. This was over 45% better than the Zacks/Wall Street consensus.

In response to these results and optimistic company guidance, analysts scrambled to raise estimates yet again. Full-year EPS projections for the current fiscal year ending in January 2017 rose 33% from $1.86 to $2.48.

And next year’s consensus profit estimate surged 43.5% from $1.93 to $2.77. And even after a fantastic year where NVIDIA is projected to hit $6.84 billion on the top line for 36%+ sales growth, next year’s consensus is for 14.5% revenue growth to $7.84.

Firing On All Frontiers

NVIDIA designs, develops and markets a top-to-bottom family of award-winning 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user, from professional workstations to low-cost computers.

NVIDIA’s 3D graphics processors are well known in the video game industry, but the company has been steadily making inroads into virtual reality, education applications and machine learning technology like that for autonomous driving.

Here’s what the founder and CEO had to say about their growth…

“We had a breakout quarter – record revenue, record margins and record earnings were driven by strength across all product lines,” said Jen-Hsun Huang, founder and chief executive officer, NVIDIA. “Our new Pascal GPUs are fully ramped and enjoying great success in gaming, VR, self-driving cars and datacenter AI computing.

“We have invested years of work and billions of dollars to advance deep learning. Our GPU deep learning platform runs every AI framework, and is available in cloud services from Amazon (AMZNFree Report) , IBM, Microsoft and Alibaba (BABAFree Report) , and in servers from every OEM. GPU deep learning has sparked a wave of innovations that will usher in the next era of computing,” he said.

Driving Innovation

Of note in the quarter were four developments in the automotive segment:

1) The company announced that its NVIDIA DRIVE PX 2 platform will power a new AutoPilot system in all of Tesla Motors‘ (TSLAFree Report) factory produced vehicles – the Model S, Model X and upcoming Model 3.

2) NVIDIA unveiled its next-generation Tegra processor, codenamed Xavier, an AI supercomputer on a chip for self-driving cars.

3) Partnered with China’s Baidu (BIDUFree Report) to develop a self-driving, artificially intelligent car and mapping system.

4) Announced an AI partnership with Europe’s TomTom to create a cloud-to-car mapping system for self-driving cars using NVIDIA DRIVE PX 2.

While the stock seems richly valued now, trading at over 33X next year’s $2.77 estimate, this is the kind of company, well-positioned in several tech growth markets, that can probably continue to command such a multiple.

My advice is to make a plan to buy the pullbacks into the $80s.

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