Nvidia (NASDAQ: NVDA) shares will surge again this year due to a strong upgrade cycle in its gaming graphics chip business, according to one Wall Street firm.
Bank of America Merrill Lynch raised its price target for the chipmaker to the highest among the firms covering Nvidia, citing the company's product leadership in multiple growth areas in technology.
Nvidia has one of the best performing stocks in the market during the past year. Its shares are up 113% in the previous 12-months compared to the S&P 500's 24% return.
While NVDA "trades at a premium valuation, we believe this is justified by Nvidia's leadership in the largest and fastest growing markets in semis including [artificial intelligence], gaming, [virtual reality], and autonomous cars," analyst Vivek Arya wrote in a note to clients Thursday. Arya said there's a "large upgrade opportunity for Nvidia cards."
Arya reiterated his buy and "top pick" ratings for Nvidia shares. He raised his price target for the stock to $275 from $251, representing 23% upside from Thursday's close. He now has the highest price target on the stock out of 29 analysts.
The analyst noted the company's current generation "Pascal" gaming graphics cards have 40% share of Nvidia card owners on PC gaming distribution platform Steam. He said there is still "a large upgrade potential" from the previous Nvidia "Maxwell" cards, which are at 48% share.
Nvidia opened trading Friday up $3.47, or 1.6%, to $227.91, a new 52-week high, compared to a low of $95.17.
