Nvidia surges on RBC upgrade that projects gaming strength and triple-digit data center growth (NVDA)

nvidia 65-inch monitorAntonio Villas-Boas/Business Insider

  • Nvidia shot up as much as 3.5% in early Monday trading after RBC Capital Markets upgraded its price target to reflect a 20% upside forecast.
  • The company should see improved growth driven by its video game chips and data center business, analyst Mitch Steves wrote in a Monday note.
  • The US-China trade war, worse-than-expected data center growth, and competition with rival chipmaker AMD are Nvidia's biggest risks, the analyst said.
  • Watch Nvidia trade live here.

Nvidia stock jumped as much as 3.5% in early Monday trading after RBC Capital Markets boosted its price target and predicted three sectors will drive growth into 2020.

The analyst raised his target price to $217 per share from $190 in a Monday note, implying a 20% upside from the stock's current price.

Nvidia "will be the best-performing large cap in our universe over the next six to nine months," RBC's Mitch Steves said. Data centers, video games, and autos are the three business segments that will drive the chipmaker's growth, he added.

Nvidia stock traded at $186.09 per share as of 12:30 p.m. ET Monday, up roughly 40% year-to-date.

Demand in the video game sector is "tracking slightly ahead of plan" after hitting a trough, Steves wrote. He cited increased complexity for future titles and growth in the virtual reality sector for his bullish sentiment. The potential for consumers to switch from rival AMD's products to Nvidia chips is also a significant upside, Steves said.

Read more: 7 companies looked at buying semiconductor firm Mellanox. Here's how Nvidia won the $6.9 billion deal.

Improvements to the company's data center business should drive revenue higher at the start of the new year, the analyst added. The bank projects 100% growth for the business in the near-term, with "high-double digits" growth expected afterward. Despite the triple-digit growth forecast, there's room for Nvidia to surprise investors, Steves wrote.

"We think results will be better than expected but our adjustments are modest in nature, as we hope that expectations do not get ahead of themselves," Steves said.

Nvidia announced in March it would purchase chipmaker Mellanox Technologies for $6.9 billion. The acquisition should further drive its data center business, and RBC's positive estimates do not yet take the purchase into account.

The biggest risks to the company's outlook come from its competition with AMD and the US-China trade war, Steves noted. The geopolitical tensions are "a significant mover of the stock and not controllable," and AMD could snag more market share if it can move its average-selling-prices below Nvidia's.

Weaker-than-expected growth for the data center business could also stall expected growth in early 2020, according to RBC.

Nvidia has 28 "buy" ratings, eight "hold" ratings, and four "sell" ratings from analysts, with a consensus price target of $185.30, according to Bloomberg data.

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