Restrictions on chip sales to China and falling demand for PCs are problems for Nvidia right now, but Piper Sandler wants investors to focus on growth in its key data center business in 2023.
The chip company (ticker: NVDA) is set to report third-quarter earnings on Wednesday, and the consensus call among analysts tracked by FactSet is that profits will be 71 cents a share from revenue of $5.8 billion. October-quarter sales in its data-center segment, the most important business for the roughly 30-year-old company, are expected to fall by a percentage in the single digits from the prior quarter. A slowdown in demand for chips in China has been a risk for the company.
Still, Piper Sandler’s Harsh Kumar on Friday reiterated his Overweight rating and $200 price target on the stock. That implies a gain of roughly 25% from current prices.
He believes the data-center segment will meet expectations for the third quarter and that Nvidia will forecast sequential growth for that operation in the mid to high single digits for the fourth quarter. That is more than the 3% growth analysts expect and higher than the growth in the low single digits AMD (AMD) has predicted.
“We do believe that NVDA has the potential to do better than the market in the long run and better than its peers,” Kumar said in his note.
The positive factors he noted include the new A800 graphic processing chip, which Nvidia launched to comply with the U.S. government’s export ban on semiconductor technology to China. In addition, he noted, when Meta Platforms reported its third-quarter earnings, it said it will increase spending on data centers, servers, and network infrastructure, which would be good news for Nvidia.
To be sure, Kumar does believe that Nvidia will be affected as the economy slows. He expects fiscal 2024 sales will grow in the 20% range versus the 53% and 61% achieved in 2021 and 2022, respectively.
For now, all eyes on October earnings.