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Shares of NVIDIA Corporation (NVDA - Free Report) opened nearly 5% lower on Tuesday after the release of a new analyst report from Pacific Crest that downgraded the stock and raised questions about desktop GPU demand, Nintendo Switch-related revenue, and Datacenter sales.
Analyst Concerns
Pacific Crest’s Michael McConnell downgraded NVDA to “Underweight.” The firm’s note also mentioned that the analyst views “downside in the shares to $90.”
McConnell’s primary concern seemed to be a continued slump in demand for desktop graphics processing units. The analyst noted that unit sales to China are declining 30% to 40% quarter-over-quarter, while unit sales to the United States are slipping about 20% quarter-over-quarter. The note also said that GPU orders to NVIDIA are unlikely to pick up until July given current inventories.
Furthermore, McConnell pointed out that desktop GPU manufacturers do not expect sales to grow this year. The firm noted concerns about difficult year-over-year growth comparisons and highlighted a lack of stimulation in the market.
McConnell also expressed concern about lower margins related to incremental Nintendo (NTDOY - Free Report) Switch revenue. The analyst said that the $400 million of incremental revenue from the new console may work to offset flat GPU sales, but the firm expects the lower margins of this console business to negatively impact earnings.
Finally, the note mentioned that quoted lead in NVIDIA’s Datacenters division have declined, which may indicate a “pause” in the business this summer.
Concern or Patience?
NVDA was a darling stock in the latter half of 2016, with shares gaining roughly 50% in the final two months of the year. Since then, things have been a bit less comfortable. Headed into Tuesday, shares were up just 2.5% year-to-date.
Nevertheless, the semiconductor industry continues to show strength, and NVIDIA’s recent maneuvering in the self-driving car market should help the company in the coming years, even if desktop GPU demand continues to slip.
Back in December, NVIDIA was granted a permit by the California Department of Motor Vehicles to start testing its self-driving car technology on the state’s roads. You can find out everything that the company has been up to in this field here: NVIDIA to Move Further into Autonomous Car Market.
For now, NVDA remains a Zacks Rank #3 (Hold).
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Here's Why NVIDIA (NVDA) Stock Slipped Today
Shares of NVIDIA Corporation (NVDA - Free Report) opened nearly 5% lower on Tuesday after the release of a new analyst report from Pacific Crest that downgraded the stock and raised questions about desktop GPU demand, Nintendo Switch-related revenue, and Datacenter sales.
Analyst Concerns
Pacific Crest’s Michael McConnell downgraded NVDA to “Underweight.” The firm’s note also mentioned that the analyst views “downside in the shares to $90.”
McConnell’s primary concern seemed to be a continued slump in demand for desktop graphics processing units. The analyst noted that unit sales to China are declining 30% to 40% quarter-over-quarter, while unit sales to the United States are slipping about 20% quarter-over-quarter. The note also said that GPU orders to NVIDIA are unlikely to pick up until July given current inventories.
Furthermore, McConnell pointed out that desktop GPU manufacturers do not expect sales to grow this year. The firm noted concerns about difficult year-over-year growth comparisons and highlighted a lack of stimulation in the market.
McConnell also expressed concern about lower margins related to incremental Nintendo (NTDOY - Free Report) Switch revenue. The analyst said that the $400 million of incremental revenue from the new console may work to offset flat GPU sales, but the firm expects the lower margins of this console business to negatively impact earnings.
Finally, the note mentioned that quoted lead in NVIDIA’s Datacenters division have declined, which may indicate a “pause” in the business this summer.
Concern or Patience?
NVDA was a darling stock in the latter half of 2016, with shares gaining roughly 50% in the final two months of the year. Since then, things have been a bit less comfortable. Headed into Tuesday, shares were up just 2.5% year-to-date.
Nevertheless, the semiconductor industry continues to show strength, and NVIDIA’s recent maneuvering in the self-driving car market should help the company in the coming years, even if desktop GPU demand continues to slip.
Back in December, NVIDIA was granted a permit by the California Department of Motor Vehicles to start testing its self-driving car technology on the state’s roads. You can find out everything that the company has been up to in this field here: NVIDIA to Move Further into Autonomous Car Market.
For now, NVDA remains a Zacks Rank #3 (Hold).
Which Stocks are Zacks Experts Talking About?
Stocks in today's headlines may be tempting buys, but how would you like a sneak peek at the stocks Zacks experts recommend? Starting today, for the next month, you can follow all of Zacks' private buys and sells in real time. You can track value and momentum stocks, ETFs, stocks under $10, options moves, insider trades, and stocks set to report positive earnings surprises (we've called them with 80%+ accuracy). Click here for all Zacks trades >>