Nvidia Is Set Up for a ‘Significant Beat and Raise.’ Here’s Why.

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Nvidia

could be a big winner this earnings season, with profits driven by solid performance in the chip maker’s gaming and data center businesses, according to Piper Sandler.

“We are looking for a significant beat and raise when the company reports earnings on Wednesday after market close, as both gaming and data center continue to perform well,” wrote analyst Harsh V. Kumar in a research note.

A new upgrade cycle in GPUs could drive growth in gaming, he said. Kumar projects a 4.3% quarter-over-quarter increase for the January quarter, which the company could beat, he added.

Although demand for gaming remains strong, and will continue to grow over the next few quarters, Kumar believes Nvidia’s (ticker:

NVDA

) data center business will drive revenue this quarter. The analyst sees data center trends accelerating in 2022, and predicts 7.5% sequential growth this quarter. With trends re-accelerating, the data center business could even reach double-digit growth, he added.

“We believe the data center business will be responsible for much of the revenue performance, translating to both an EPS and revenue beat,” he said.

Kumar said that in his view Nvidia “is supply constrained at this point in time,” affecting both the gaming and data center business. Regardless, the company is better positioned to get supply than competitors, he added. He expects the following quarter’s guidance to be up sequentially, even if gaming sales have historically been flat during the April quarter.

The analyst reiterated an Outperform rating and a $350 price target on the stock. On Monday, Truist analysts also expressed an upbeat view for Nvidia’s earnings. For the Truist team, Nvidia’s investment in artificial intelligence should drive management and analysts alike to increase their earnings forecasts, pushing the share price higher.

Nvidia was up 3.6% to $251.32 in premarket trading on Tuesday. The stock has lost 17% to date. Nvidia earlier this month abandoned its bid to acquire chip designer Arm due to regulatory opposition.

Write to Sabrina Escobar at [email protected]