What Happened:
Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) jumped 5.64% in the afternoon session after the company was named a "Top Pick" by Morgan Stanley in a research note. Analyst Joseph Moore added that "We think the recent selloff is a good entry point, as despite supply constraints, we still expect a meaningful beat and raise quarter - and, more importantly, strong visibility over the next 3-4 quarters." Morgan Stanley has an Overweight (Buy) rating and a price target of $500 per share. The price target implied a potential 22% upside from where shares were traded before the note was released.
It's worth noting that in the Q1'23 earnings report, Nvidia pleasantly surprised with their Q2 revenue guidance, surpassing expectations by over 50%. This led to operating profit guidance meaningfully ahead as well.
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What is the market telling us:
Nvidia's shares are not very volatile than the market average and over the last year have had only 28 moves greater than 5%.
The previous big move was three months ago, when the stock gained 23.7% on the news that the company delivered an exceptional quarter that topped analysts' estimates across key metrics. Revenue surpassed expectations by an impressive 10.3%, driven by strong data center revenue. Notably, the company improved profitability, with both gross margin and operating margin outperforming expectations. Earnings per share (EPS) beat by an impressive 18.8%. Inventory levels experienced a nice decrease during the quarter. In addition to the outstanding quarterly results, the revenue guidance for the next quarter surpassed expectations by over 50%. Yes, that's not a typo. Similarly, the operating profit guidance exceeded Consensus estimates meaningfully.
Founder and CEO Jensen Huang emphasized the ongoing transformations in the computer industry, particularly the advancements in accelerated computing and generative AI. He highlighted Nvidia's readiness to seize the opportunities presented by the anticipated trillion-dollar shift in global data center infrastructure from general-purpose to accelerated computing, as firms implement generative AI into their business operations.
Overall, the company's blowout quarter, with its impressive revenue growth, enhanced profitability, and positive guidance, underscored its strength in the market. Nothing in this world is perfect, but this was a near-perfect quarter.
Nvidia is up 203% since the beginning of the year, and at $434.33 per share it is trading close to its 52-week high of $474.94 from July 2023. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $6,640.
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