Artificial intelligence remains the key theme in technology companies’ earnings. Those on the prowl for attractive AI plays will obviously look at
Nvidia.
They should also watch
Cisco,
according to analysts at Melius Research.
The call on
Nvidia
(ticker: NVDA) doesn’t come as much of a surprise, with the chip maker’s stock having more than tripled in value this year on the use of its graphics-processing units to power AI systems.
However, the shares have barely risen over the past three months with tighter U.S. restrictions on AI chip exports to China causing concern. Reuters reported on Tuesday that Chinese search company
Baidu
(BIDU) placed an AI chip order with Huawei earlier this year as an alternative to ordering from Nvidia, citing people familiar with the matter.
Nvidia investors shouldn’t worry, according to Melius analyst Ben Reitzes. He argues Nvidia will find other buyers for its chips and expects the company to be able to give details about potential redistribution of products meant for China to the Middle East and other regions when it delivers earnings on Nov. 21.
Additionally. Nvidia might spring a positive surprise on software revenue, which could give investors more confidence in its high valuation.
“If Nvidia can prove it can sell over a billion dollars in unbundled software and enable more recurring-like revenue from [AI training service] DGX Cloud, we may be able to see it retain a higher multiple as earnings mature,” Reitzes wrote.
Reitzes has a Buy rating and two-year target price of $730 on Nvidia, based on a price-to-earnings multiple of 35 times the company’s forecast 2026 earnings.
That makes Reitzes one of the most bullish analysts on Wall Street on Nvidia, which has an average target price of $655 across 52 analysts polled by FactSet.
Nvidia shares were down 0.7% at $454.51 in premarket trading on Tuesday.
Networking-equipment provider
Cisco
(CSCO) hasn’t been an AI favorite but Reitzes thinks that could change with the company’s planned $28 billion acquisition of cybersecurity and data-analytics company
Splunk
(SPLK), announced in September.
“Within the next year or so we expect Splunk to leverage vast troves of log data to help customers solve network problems with a Generative AI offering,” Reitzes wrote.
That’s a long-term catalyst but there’s reason to be positive ahead of Cisco’s earnings next Wednesday after its peer
Arista Networks
(ANET) topped expectations, partly driven by demand from AI companies.
Reitzes has a Buy rating and two-year target price of $68 on Cisco, based on a price-to-earnings multiple of 14 times its forecast 2026 earnings.
Cisco shares were down 0.4% at $53.07 in premarket trading.
Write to Adam Clark at adam.clark@barrons.com
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