The semiconductor industry has enjoyed tremendous positive momentum in recent years led by chipmaker Nvidia Corporation (Nasdaq: NVDA). Yet even after the stock has gained nearly 1,000 percent in the past three years, Bank of America analyst Vivek Arya says Nvidia investors can expect more of the same in 2018 and beyond.
According to Arya, concerns over a potential softening in demand for cryptocurrency mining graphics processing unit (GPU) shouldn’t keep investors away from Nvidia. Arya says secular growth in PC gaming demand will be more than enough to offset any downturn in cryptocurrency demand.
“We see PC gaming as a secular, not cyclical, market that can potentially grow at a 19 percent annual pace [through 2020], or four times the growth rate of broader semis, driven by expanding adoption, new gaming formats (4K, eSports, VR) and favorable competitive dynamics,” Arya says. Looking ahead, Arya projects annual PC GPU gaming sales growth will be split equally between increasing unit sales and rising prices.
Arya forecasts a 24 percent uptick in GPU sales in 2018, including a 28 percent increase in PC GPU revenue. That trend is good news for both Nvidia and competitor Advanced Micro Devices (AMD).
Nvidia even has room to improve the market share of its current-generation Pascal game card. Arya says recent data from Steam suggests only a 44 percent adoption rate of the Pascal card, short of the 53 percent adoption peak of Nvidia’s prior-generation Maxwell card.
Cryptocurrency mining demand has been one of the primary drivers behind a surge in GPU prices in recent quarters. Bernstein analyst Mark Li says a drop in cryptocurrency prices could potentially flood the market with GPU supply.
“If mining eventually becomes sustainably unprofitable (for example, if currency pricing were to permanently collapse), there is a risk of cards purchased for mining getting dumped in the secondary market and depressing sales for a while,” Li says.
However, Arya is already factoring in a 30 percent decline in cryptocurrrency-related GPU sales in the second half of 2018 and a further 36 percent decline in 2019.
“We expect new products, improved availability and firmer pricing of gaming GPU to help offset large modeled declines in crypto-miner demand,” Arya says.
Bank of America has named Nvidia its top overall semiconductor stock pick. The firm has a “buy” rating and $300 price target for NVDA stock.