Bernstein Starts Nvidia At Outperform, Long-Term Opportunity 'May Still Be Underestimated'

It takes a lot of guts to initiate an Outperform rating on a stock after it skyrockets 665 percent in three years. Bernstein analyst Stacy Rasgon did just that when she initiated bullish coverage on NVIDIA Corporation (NASDAQ: NVDA), one of the hottest stocks in the market in the past few years.

Rasgon acknowledges the huge move Nvidia has already made, but points out that the company has barely tapped into some massive growth markets.

“Our analysis suggests their datacenter TAM is likely somewhere between ‘big’ and ‘huge,’ driven by the mainstreaming of AI and the rise of accelerated computing; we forecast 63% annual growth through CY2019, reaching $3.6B in revenue,” Rasgon said in a note.

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She believes Nividia’s multi-year head start in investing in artificial intelligence and deep learning puts the company well ahead of competitors in those two high-growth fields.

In addition, Nvidia’s automotive business is just getting started and could eventually provide a multi-billion opportunity for the company within a decade. Rasgon says double-digit gaming growth should be sustainable in the long term.

Despite Nvidia’s explosive run in the market, Rasgon says the stock remains reasonably valued compared to other high-growth tech stocks. Even after a 665 percent gain, the market may not be fully-appreciating Nvidia’s long-term value, she says.

However, with the stock trading at greater than 9x EV/sales and 40x forward PE, Rasgon says long-term investors should be willing to stomach some volatility as the Nvidia story unfolds.

In addition to the Outperform rating, Bernstein set a $165 price target for Nvidia.

The stock traded recently at $136.93.