Nvidia should benefit from data center strength, new products, BofA says
Antonio Bordunovi/iStock Editorial via Getty Images

Nvidia (NASDAQ:NVDA) shares have sold off recently on concerns over slowing growth, but that appears to be overdone, investment firm Bank of America said.
Analyst Vivek Arya, who has a buy rating and a $375 price target on Nvidia, notes that the 26% decline year-to-date, including last week's sharp drop, may stem from concerns over its gaming business. Arya postulated that European customers could curb demand due to the Russian invasion of Ukraine, while Chinese customers could be impacted by Covid-related lockdowns.
Lastly, crypto customers could be hurt by declines in the price of Ethereum and the change to proof-of-stake, which does not need graphics cards.
"We flag these headwinds, but argue investors could be underappreciating other supportive trends including: (1) strength in data center, pro-viz and 2H autos ramp," Arya wrote in a note to clients, adding that Hopper-based gaming products and restocking inventory could also help.
Nvidia (NVDA) shares rose nearly 2.5% to $224.56 in premarket trading on Tuesday.
If Nvidia (NVDA) were to see a downturn in gaming, that would only impact earnings per share by 7% to 9%, Arya pointed out, assuming a 5% decline quarter-over-quarter in this quarter and a 10% decline next quarter, compared to a previous outlook of growth rates of 3% and 9%.
Secondly, Nvidia may benefit from its newly announced products, including the Hopper line of GPUs, as well as channel refill activity. "Important to note that NVDAâs gaming sales have grown at an average 25% [compound annual growth rate] in every two year period (range 8% CAGR to 45% CAGR), while the scenario above assumes a 6% 2-yr [compound annual growth rate], so well below the historical range," Arya wrote.
Nvidia also appears to be supply constrained, as the company boosted its inventory commitments to its foundry partners, Taiwan Semiconductor (TSM) and Samsung (OTC:SSNLF) by 254% year-over-year to more than $9 billion in its most recent quarter, Arya pointed out.
"We continue to see [Nvidia] as one of the most important growth companies in semis, perhaps in tech given its ability to grow sales in high entry-barrier computing markets at a 20-25% CAGR (3x semis industry growth), while maintaining industry leading 45%+ EBIT [margins]," Arya wrote. 
Last week, investment firm Truist slashed price targets across the board in the semiconductor space, including Nvidia (NVDA), telling investors it has found "hard evidence of order cuts."