Nvidia shares rallied up $4.31, or 8 percent, to $61.38 Thursday after Prudential Securities analyst Hans Mosesmann upgraded the stock from a "hold" recommendation to a "strong buy" and set a 12-month price target of $80 a share.
Nvidia (Nasdaq: NVDA), which makes chipsets for accelerating 3D graphics, has consistently topped analysts' forecasts in recent quarters while other chipmakers have either fallen short of estimates or warned of disappointing sales ahead.
"Unlike the other 32 semiconductor companies we cover here, Nvidia will not be issuing an earnings warning this quarter," Mosesmann said. "In fact, we're convinced there's a good chance it could beat the numbers this quarter."
First Call consensus pegs Nvidia for a profit of 39 cents a share in its first quarter on sales of $237.6 million.
Mosesmann said his initial fears that Nvidia might miss estimates in the quarter have been erased because of the higher average selling prices (ASPs) of its GeForce2 MX chips, which replace the company's older TNT2 processors found in PC chipsets.
"We just got back from Asia, and it's clear Nvidia is seeing strong demand for its chips and it is gaining market share by leaps and bounds," he said. "Most important, ASPs for its chips are going up drastically. The new chip is selling for around $28 compared to $12 for the old chip."
Because prices for dynamic RAM (DRAM) chips, which are packaged with Nvidia's graphics accelerating chips, have fallen to bargain-basement prices, Nvidia customers are essentially paying the same price for its higher performing chips.
Last quarter, the Santa Clara, Calif.-based firm hurdled analysts' estimates when it returned a profit of $31.1 million, or 38 cents a share, on sales of $218.2 million.
The stock moved as high as $88 in June before falling to a low of $27.50 in December.
Five of the six analysts tracking the stock rate it either a "buy" or "strong buy."