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Jefferies' Secular Trends Thesis In NVIDIA Just Starting, Remains A Top Pick

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Jefferies' Secular Trends Thesis In NVIDIA Just Starting, Remains A Top Pick

NVIDIA Corporation (NASDAQ: NVDA) remains a top pick for Jefferies, saying that the firm's "four secular trends thesis [is] just starting to play out."

Analyst Mark Lipacis noted NVIDIA's first-quarter beat was driven by three of those four theses: datacenter (up 63 percent year-over-year), auto (up 47 percent year-over-year) and gaming (up 17 percent year-over-year).

"We think the 2HC16 gets better as NVDA benefits from VR headset ramps (4th trend) that require $300 ASP Graphics Cards, and as NVDA's 16nm Pascal ships into the PC Gaming and Data Center markets," Lipacis wrote in a note.

The company guided July quarter revenue of $1.35 billion (Street: $1.28 billion) and the analyst says the outlook implies $0.05 EPS upside.

Related Link: Tesla Demand Drove NVIDIA's Q1 Beat, Q2 Outlook

The analyst highlighted that five years ago, over 50 percent of NVIDIA's revenues competed with Intel Corporation (NASDAQ: INTC), and its gross margin was less than 40 percent. In the April quarter, the company's PC business was 8 percent and the product GM was 55.7 percent, 1600 bps higher.

"Three years down the road, we think NVDA has $3.50 of EPS power," said Lipacis, who has a Buy rating on the stock.

At the time of writing, shares of NVIDIA were up 14.33 percent on the day at $40.67. The analyst raised the price target to $45 from $42.

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