Nvidia Slides as Outlook Fails to Inspire After 50% Rally

(Bloomberg) -- Nvidia Corp. shares fell on Friday, reversing an early advance after the chipmaker gave an outlook that was seen as light, overshadowing better-than-expected results.

Analysts had a mixed reaction to the quarter, with one firm upgrading the shares and another cutting its view. While a number of firms raised their price targets, there were also concerns over Nvidia’s near-term growth trends. Morgan Stanley called the stock a core holding, and wrote that the results suggested “a firmer foundation for further growth,” but added that the valuation “leaves little room for error,” and that it didn’t want to chase a recent rally.

Shares fell as much as 4.4%, though it last traded down 2.8% on the day. The decline follows a gain of about 53% thus far this year, a move that slightly outpaces the 51% rise of the Philadelphia Semiconductor Index. Even with the 2019 gains, Nvidia remains nearly 30% below a peak in October 2018.

Here’s what analysts are saying about the results:

BofA, Vivek Arya

Nvidia is “uniquely positioned to reaccelerate in existing markets while expanding into new markets.” The outlook is due to “gaming seasonality.”

Reiterates buy rating and “top large-cap pick” status. Price target raised to $275 from $250.

Craig-Hallum Capital Group, Richard Shannon

Upgrades to buy from hold; price target raised to $255 from $200.

A better-than-expected quarter for Nvidia’s gaming business “provides ample proof that a strong cycle is coming over the next year, and competitive risks are contained.”

The data-center business “surprised us” with how strong it was, and “caused us to rethink our thesis on growth potential and competitive risk.” Craig-Hallum now has “increased confidence in 20% growth potential and improved [gross margin] outlook.”

Citi, Atif Malik

Revenue growth should resume in the January quarter, “led by strong datacenter growth.”

Likes the set-up for the stock given improving comparisons in coming quarters. Also, shares should outperform other chipmakers over the rest of 2019 “as semis investors rotate into stocks with new product cycle appeal in 2020.”

Nvidia “offers the best programmable data center computing platform that can be scaled with high software/compiler moat.”

Buy rating, price target raised to $245 from $200.

Morgan Stanley, Joseph Moore

This was a “mixed quarter,” but Nvidia is “on a firmer foundation for further growth,” and is “one of the better long-term growth stories in semis”

The strength in the stock has been surprising, and the current valuation “leaves little room for error,” as it is trading at a premium to its peers and its own history. Views the stock as “a core holding, but we aren’t inclined to chase it” after its recent gains.

Equal-weight rating, price target raised to $217 from $180.

Jefferies, Mark Lipacis

Notes the sequential growth in data-center revenue, which “is being driven by natural language processing applications,” an area where Nvidia “is positioned to emerge as the de facto standard.”

Data-center should continue to grow, and “investors will pay a premium multiple for that visibility and growth.” There isn’t much competition for Nvidia “the AI/Neural Networking markets, due largely to the ecosystem the company has created.”

Buy rating, price target raised to $250 from $210.

Raymond James, Chris Caso

Notes the strength in data-center revenue, and that “incremental strength appears to secular - coming from AI inferencing (driven by speech recognition), something bulls had been waiting on for several quarters.”

Attributes the “slight downside” in the outlook to the Street “mis-modeling seasonality since consoles and notebooks are now a larger part of revenue.”

Despite the recent rally in the stock, sees continued earnings power, “leaving room for shares to move higher.”

Outperform, price target raised to $240 from $180.

Bernstein, Stacy Rasgon

The results “were reasonably decent,” but the outlook looked a little light. Near-term revenue for Nvidia’s automotive business “disappointed, and inflection for this ‘next phase of growth’ appears increasingly ephemeral for now.”

The results aren’t “thesis moving,” and the stock is “likely to settle with little upside catalysts.”

Market-perform rating, price target raised to $190 from $150.

Piper Jaffray, Harsh Kumar

“Encouraged by the return of strong sequential data center growth,” and this market “is primed for growth as we enter calendar 2020, providing gross margin tailwinds along the way.”

Despite the slightly weak outlook, Nvidia “represents an incredible opportunity to play the mega-trends of data center, gaming, and autonomous driving.”

Overweight rating, price target raised to $230 from $200.

New Street Research, Pierre Ferragu

Nvidia has “good growth potential,” but it is “nevertheless facing more uncertainties about its growth prospects in the near term.”

The outlook “suggests underlying secular growth might be well below the ~20% observed in recent years,” while its gaming business could remain “lumpy.”

Given the current valuation, “we see as much upside as downside potential in the next twelve months” and recommends waiting on a better entry point to buy the stock.

Downgrades to neutral from buy. Price target $210; had been $180, according to Bloomberg data.

What Bloomberg Intelligence Says:

“Even as Nvidia’s gaming and data center segments showed sequential improvement, consistent sales growth may take longer.”

- Analyst Anand Srinivasan

- Click here for the research

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Monica Houston-Waesch

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