Nvidia’s Deal with Toyota Could Bring Meaningful Revenue in 2019, Says Needham – Barron’s

Posted: Monday, July 10, 2017

Shares of Nvidia (NVDA) are up $5.24, or 3.6%, at $152, following a couple of endorsements from the bulls this morning.

There was a favorable mention by Jefferies & Co.’s Mark Lipacis, who cut his rating on shares of Intel (INTC), saying Nvidia is leading a “fourth wave” of computing that may erode Intel’s server-chip share.

In addition, Needham & Co.’s Rajvindra Gill this morning reiterated his Buy rating on Nvidia, and raised his price target to $200 from $130, after learning from car maker Toyota (TM) that it has “aggressive” plans to deploy driver assistance systems in its cars using Nvidia chips over the next couple years, which could lead to “meaningful revenue” for Nvidia.

Nvidia announced a deal for Toyota to use Nvidia’s “Drive PX” chips back on May 10th.

Our meetings with Toyota confirm that it has aggressive plans to deploy Level 2 Advanced systems in mass market in the U.S. and Japan over the next 2.5 years. All of these systems will be on NVIDIA’s Drive PX Xavier platform. From this deal alone, assuming ASPs of $150-$250, we calculate $1BN-$1.7BN of incremental sales or $0.35-$0.65 EPS. If we think about what the model would look like in CY19/CY20, we calculate earnings power of $5-$6, and believe should be valued at 40x P/E (currently valued at 37x).

Digging into those numbers, Gill explains:

We estimate the Toyota deal alone could generate incremental $1-1.7B or $0.35-$0.65 EPS over 2.5 years: Toyota ships ~3.5MM vehicles in the U.S. and 5MM in Japan (or 15% and 50% share, respectively). It intends to deploy L2 Advanced across all of its major models – from Lexus to Corolla by 2020 – all using NVDA’s platform. At 100% penetration by Toyota, NVDA could generate $1.7B of sales from this deal.

Gill offers the following “sensitivity” analysis of how much money it can make from Toyota’s sales:


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