NVIDIA (NASDAQ: NVDA) Upgraded Over the Growing Deployment of Distributed Computing for Medical Applications to Counter the Coronavirus (COVID-19) Pandemic

Mar 24, 2020
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NVIDIA (NASDAQ:NVDA) has been upgraded by the analysts at Needham to a ‘Buy’ from the previous ‘Hold’ recommendation. The stock’s price target has also been increased to $270, marking a 10.36 percent upside potential from current levels.

According to the investment note penned by Needham analyst Rajvindra Gill today, investors should head for companies with "superior balance sheets and robust free cash flow" during the current environment characterized by acute macro uncertainty.

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Mr. Gill saw the increasing need for GPUs in distributed computing medical applications – amid the ongoing coronavirus (COVID-19) pandemic – as a key bullish factor behind the upgrade.

As a refresher, projects such as Folding@home utilize distributed computing power to simulate and analyze the process of protein folding along with the diseases and complications that arise from protein misfolding and aggregation.

Before discussing implications for NVIDIA, additional context may be beneficial to our readers. Proteins are essentially complex chains of amino acids that perform a variety of functions in an organism’s body – from acting as building blocks of bones and muscles to stimulants for biochemical reactions (enzymes). While scientists have sequenced the human genome, it is not very helpful in trying to analyze the precise manner in which a particular protein functions. This is where a folding analysis comes handy. Folding is simply the manner in which a protein ‘folds’, adopting a particular shape in the process. This shape or ‘fold’ then determines the function that a specific protein performs (of course a protein’s constituents are also considered in this analysis).

These findings, in turn, assist medical professionals in developing new drugs to counter a myriad of diseases, including Alzheimer’s disease, Huntington’s disease, cystic fibrosis, BSE (Mad Cow disease), etc. With the advent of the coronavirus pandemic, these distributed computing projects have received an added impetus as thousands of users from around the world have banded together to loan their computing power to medical experts who are trying to counter this pandemic, indirectly driving a short-term boost in GPU demand to NVIDIA’s benefit. In fact, Wccftech has been an enthusiastic partner in this endeavor.

It should be noted though that these distributed computing projects run calculations on millions of PCs in order to simulate protein folding. For this reason, the success of Folding@home and other similar projects is quite hard to match as data centers take time to build and are generally not scalable. Scalability is an essential requirement for these tasks as the computing power is only required for a maximum of 2 to 3 months for a specific project. Therefore, any boost that NVIDIA receives will likely only be transitory.

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Of course, this is not the only upgrade that NVIDIA has received in recent days. In an investment note published on the 12th of March, Morgan Stanley (NYSE:MS) named the company one of its top ideas in the semiconductor space. According to the Wall Street behemoth, the recent selloff has made NVIDIA’s current valuation attractive.

The analyst Joseph Moore wrote:

“For larger cap growth with the best chance of powering through tough conditions, we favor Nvidia.”

Moreover, a recovery in cloud spending and the expected launch of NVIDIA’s 7nm Ampere in the second half of 2020 provided additional impetus for Morgan Stanley’s upgrade.

Interestingly, Moore pointed to the growing need for remote computing amid the coronavirus pandemic as a bullish factor for NVIDIA.

NVIDIA’s stock has declined by 9.61 percent year to date (based on Monday’s closing price). For comparison, the NASDAQ Composite has declined by 18.87 percent in the same timeframe. The stock is currently trading at $244.65, up by 15.33 percent (as of 10:48 a.m. ET).

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