"We think investors underestimate the importance of the chip+hardware+software ecosystem that Nvidia has created," Evercore ISI said.
I-HWA CHENG/AFP via Getty Images
Nvidia stock still has big upside potential even after it's surged more than 200% over the past year, according to a note this week from Evercore ISI.
The firm initiated Nvidia at "Outperform" with a $1,160 price target, representing potential upside of 36% from current levels. And in its bull-case scenario, Evercore said Nvidia stock could surge to $1,540 in the next year, a jump of 81% from current levels.
Driving that lofty price target is the idea that Nvidia is much more than a chip company, but the bulk of investors still only see it as that.
"We think investors underestimate 1) the importance of the chip+hardware+software ecosystem that Nvidia has created, 2) that computing eras last 15-20 years and are typically dominated by a single vertically integrated ecosystem company, whose returns are measured in 100-to-1000 bagger range," Evercore's Mark Lipacis said.
The key thesis behind Lipacis' bullish call is that Nvidia is an AI ecosystem play, and it's the clear leader in a new computing platform that will drive efficiency gains for years to come.
"That 'Ecosystem Play' typically captures 80% of the value created during its respective computing era, while other[s] compete for the other 20%," Lipacis said.
Lipacis expects Nvidia to capture 80% of the parallel processing market by 2030, which could be worth more than $350 billion. In such a scenario, Nvidia would have an earnings power of $69 per share by the end of the decade, compared to the company generating earnings per share of $11.93 last year.
"We believe that the Tectonic Shift to the current Parallel Processing / IoT Computing Era started 5-to-8 years ago, and that NVDA is the dominant ecosystem play in parallel processing, which is only in the beginning phases of generating outsized returns for its investors," Lipacis said.
