Nvidia Corp. GeForce GTX 1070 graphic processing units (GPU) sit stacked inside a ‘mining rig’ computer, used to mine the Ethereum cryptocurrency, in Budapest, Hungary. (Photographer: Akos Stiller/Bloomberg)

Nvidia Targets Slashed, Outlook Sparks Worst Day in a Decade

(Bloomberg) -- Nvidia Inc. gave a fourth-quarter outlook that was below expectations, hurt by weakness in its gaming division and the lingering loss of demand from the collapse of cryptocurrency mining. The results prompted a slew of price-target cuts on Wall Street, with Goldman Sachs saying its bullish view had been “clearly wrong,” though many analysts maintained optimism about Nvidia’s longer-term growth prospects.

The shares sank as much as 20 percent, putting them on track for their worst session since July 2008. With the day’s collapse, the stock has now dropped more than 40 percent from a record high in early October.

Nvidia Targets Slashed, Outlook Sparks Worst Day in a Decade

Global semiconductor peers fell in sympathy, with the Philadelphia Semiconductor Index down as much as 3.3 percent. Among notable decliners, Advanced Micro Devices Inc. fell as much as 8.2 percent and Marvell Technology Group dropped as much as 3.1 percent.

Nvidia was just the latest in a series of disappointing forecasts from chipmakers, following bellwether names such as AMD and Texas Instruments Inc., which have together raised broad concerns about future demand for the technology sector.

Here’s what analysts are saying:

Goldman Sachs, Toshiya Hari

Goldman removed Nvidia from its conviction list, writing that it had underestimated both a channel inventory build and a correction in the company’s gaming division.

“While we view the inventory correction in Gaming as a one-time reset as opposed to a change in the long-term growth profile, we believe it could take a few quarters before the market regains confidence in the growth trajectory of the business, especially given the weak economic backdrop.”

Goldman maintains its buy rating, writing that Nvidia still “has access to one of the best growth opportunity sets in Semis,” along with a “sustainable competitive lead.” but cuts its price target to $200 from $283. The average price target is around $239, according to data compiled by Bloomberg.

B. Riley FBR, Craig A. Ellis

B. Riley FBR downgraded Nvidia to neutral, removing a buy rating that had stood since early 2014.

“The catalyst is a meaningful F3Q19 results miss and much more substantial F4Q19 guide lower versus our cautious preview, and an adverse impact to FY20’s Y/Y overall sales growth profile in our updated model.”

B. Riley FBR also cut its earnings expectations for 2019 through 2021 and lowered its price target to $190 from $240.

Bernstein, Stacy Rasgon

Bernstein cut its price target to $250 from $300 but writes that the stock sell-off “feels more like an opportunity than a thesis-changer to us.” The bank affirmed its outperform rating.

“While we understand the reaction” to the weakness in Nvidia’s gaming division, “the shortfall does feel driven more by temporary factors, and the broader secular growth story seems well intact.”

“While this is going to be painful, it seems temporary.”

Wells Fargo, Aaron Rakers

“Concerns (and now frustration) over a significant gaming channel inventory burn-off have materialized.”

Wells Fargo has an outperform rating but cut its target to $235 from $315. “While clearly painful over the near-term, we remain positive on Nvidia’s long-term competitive positioning and growth opportunities.”

©2018 Bloomberg L.P.