Nvidia Sentiment Turning Positive: Time To Buy

Includes: AAPL, AMD, NVDA
by: Adam Levine-Weinberg

Last week, I wrote that Nvidia is a good buy candidate, but that poor investor relations has hampered the stock over the past year. By failing to appropriately communicate the extent of success that the company has experienced this year, Nvidia (NASDAQ:NVDA) has encouraged many analysts to maintain unreasonably low expectations for the company.

Wall Street sentiment finally seems to be turning in favor of Nvidia this week. On Monday, two analysts separately stated that Nvidia will be the GPU supplier for Apple's (NASDAQ:AAPL) MacBooks in 2012. The company had lost this business to rival AMD earlier in the year. While not especially meaningful from a sales or earnings perspective, this design win has been taken as a sign of growing momentum for Nvidia.

Then, on Tuesday, Needham analyst Rajvindra Gill upgraded the stock from Underperform to Buy and set an $18 price target. This was particularly notable because Gill has been vocally bearish regarding the stock for several months. As recently as November 3, he was forecasting a weak performance from the company for Q3 and Q4. Back in July, Gill cut his rating on the stock and claimed that it could trade down as low as $9. This was particularly harsh given that Nvidia has more than $4 in net cash per share on its books.

The Apple report and the Needham upgrade together helped Nvidia post strong gains on both Monday and Tuesday in spite of declines in the broader market. (Data from Yahoo Finance.) Nvidia has had all of the fundamentals for outperformance in place for months. Given this week's relative strength, Nvidia may finally be poised for major gains. If you've been waiting on the sidelines, now may be a good time to buy. I expect NVDA to test the top of its trading range at $16 in the next week or two and ultimately break out towards $20.

Disclosure: I am long NVDA.