Nvidia Targets Fall as Outlook Cut ‘Worse Than We Expected’

(Bloomberg) -- Nvidia Corp. analysts cut their price targets on the chipmaker Tuesday, a move that came in reaction to the company lowering its fourth-quarter revenue outlook.

The disappointing guidance dashed recent signs of optimism that pain in the semiconductor industry, which has struggled with weak demand and high levels of inventory, could be nearing an end. Multiple analysts said they had been anticipating weakness, but that the scale of the cut still came as a surprise.

The stock fell 1.3 percent, extending a drop of nearly 14 percent in Monday’s session. At current levels, the stock has lost more than half its value since a record in early October.

Nvidia Targets Fall as Outlook Cut ‘Worse Than We Expected’

Here’s what analysts are saying:

Needham (Rajvindra Gill)

Downgrades by two notches, to underperform from buy, and removes its $225 price target.

“Although the shares have fallen sharply, we believe end demand will deteriorate further in its core markets,” leading to the stock possibly dropping to $100 or below.

Morgan Stanley (Joseph Moore)

“Missing the quarter this badly in gaming indicates more significant challenges than we had anticipated, given that this is still a channel fill quarter for midrange/high end.”

The weakness in cloud and HPC chips “seems temporary,” but Nvidia has become “a show me story with lower P/E assumptions.”

Downgrades the stock to equal weight from overweight and slashes price target to $148 from $220.

Jefferies (Mark Lipacis)

The outlook was “worse than we expected,” even though the firm removed Nvidia from its Franchise Picks list last week on concerns over the data center business.

Cuts price target to $185 from $246 but keeps buy rating, writing that “we continue to believe NVDA benefits from secular trends in parallel processing.”

Cuts earnings estimates for both 2019 and 2020 and speculates “that it takes 7 qtrs for NVDA to return to previous peak quarterly revenues.”

“This is NVDA’s second material reduction in outlook in less than 3 months, so we expect most investor questions to center on NVDA’s near term / long term outlook as well as its forecasting process.” Suggests Nvidia could increase the pace or level of its stock buyback program.

Raymond James (Chris Caso)

Cuts price target to $165 from $250 in a report simply titled, "Ouch."

Writes that “headwinds are mounting” and lowers expectations for both earnings and revenue for both 2019 and 2020.

“As is often the case in semis, the inventory correction in both gaming and now datacenter will cause FY20 estimates to overcorrect - but it’s also by now clear that FY19 estimates had gotten inflated by both cryptocurrency and excess purchases by cloud service providers.”

UBS (Timothy Arcuri)

The outlook “finally sets the stage for a new positive revision cycle starting this summer.” The firm trimmed its price target by $10 to $180, but upgraded the stock to buy from neutral.

“The sun should start peeking through the clouds,” analysts wrote to clients. Revenue expectations have “finally reset enough that we have catalyst path.”

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