REUTERS/Steve Marcus
- Nvidia, one of the best performing stocks last year, has an extremely expensive stock price compared to its earnings.
- Cowen says the stretched valuation may be worth it as revenue from autonomous driving kicks in next year.
- Follow Nvidia's stock price in real-time here.
Nvidia is crazy expensive compared to its semiconductor peers, and the stock may be worth the stretched price thanks to autonomous vehicles, Cowen says.
The firm launched coverage on Nvidia this week, giving the chipmaker a $325 price target and "outperform" rating. That’s about 31% above where shares were trading Friday afternoon.
"While we recognize shares are expensive, currently trading with a ~50% premium over peer multiples, we would argue NVIDIA’s growth potential and ties to multiple AI -driven growth vectors warrant an even higher multiple," analyst Matthew Ramsay told clients this week. Nvidia's estimate price-to-earnings ratio for 2018 is 31.71 verus the sector average of 21.84, according to Bloomberg data.
Among those artificial intelligence drivers is Nvidia’s role in powering autonomous vehicles, something Cowen says is only in the extremely early stages.
"NVIDIA’s technology and thought leadership has placed it in a prime position to take meaningful share of the autonomous driving processing market in the future," said Ramsay. "We believe (1) the vast majority of personal and enterprise vehicles will have autonomous capability by 2035, and (2) significant computing (both in-car and in-datacenter) will be required to bring this ecosystem to market."
The company already has a robust network of over 20 partners using its technology, including names like Tesla, Audi, Mercedes, and Volvo. What’s more, it’s not just something to look forward to, revenue from autonomous driving could kick in as soon as next year, Cowen estimates.
"While investors rightly focus on datacenter and gaming, we believe the next leg of growth for NVIDIA as a company and NVDA shares will come in C’19-’21 in the automotive franchise," said the firm.
Nvidia was one of the best-performing stocks of 2017, contributing to its stretched valuation, and have already risen 22% in 2018 thus far.
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