NVIDIA Corp (NVDA)

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Why Nvidia is this analyst's top stock pick for 2023
By: Morningstar | December 12, 2022

Challenges over the past year 'were just short-term distractions'

Nvidia Corp.'s stock has had a rough year, shedding more than 40% so far in 2022 amid concerns about challenges in gaming and in China, as well as a large inventory write-down.

But Cowen & Co. analyst Matthew Ramsay says now is the time to own the chip name. He named it his "best idea" for 2023 in a Monday note to clients.

The issues Nvidia (NVDA) has had over the past year "were just short-term distractions from the acute fundamental thesis: NVIDIA is the leader in accelerated compute and the key enabler for AI [artificial intelligence] across vertical industries -- full stop," Ramsay wrote.

See also: Alphabet stock on track for longest losing streak in more than four years

In his view, Wall Street underappreciates a number of elements of Nvidia's story. For one, it discounts "how early we are in AI penetration, and the ability for [Nvidia] to create new markets [and] use cases through product innovation (both hardware and software)."

Additionally, Ramsay thinks that investors aren't giving Nvidia enough credit for its potential to keep increasing average selling prices on the back of scaling artificial-intelligence performance.

"The combination of these drives our above-consensus estimates, particularly in Datacenter," he said.

Read: Nvidia's mixed earnings spark optimism: It's 'easier to suggest that the bottom for numbers is likely in'

Ramsay is upbeat about "several strong product cycles" in the year ahead. Nvidia's "next-gen datacenter accelerator H100 is ramping now," he wrote, and its ARM-based Grace central processing unit (CPU) is expected in the first half of 2023.

What's more, the gaming business had been volatile thanks to crypto-mining demand, but Ramsay sees "early signs of channel normalization" in this area, which sets a path for "a return to growth in that business -- now permanently free of crypto bangs/busts."

Nvidia shares are ahead 0.7% in Monday afternoon trading and recently changed hands north of $171. Cowen rates the stock at outperform, with a new price target of $220, up from $200.

The stock, off nearly 42% thus far this year, is on track for its worst yearly performance since 2008, when it plunged 76%.

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