After a spectacular run, graphics chip maker Nvidia (NVDA) is likely to face difficult year-over-year growth comparisons in the near term, Canaccord Genuity analyst Matthew Ramsay said in a report Wednesday.
Nvidia has been riding high on strong sales of graphics chips for gaming PCs and consoles as well as processors for cloud computing and artificial intelligence platforms. It also has staked out key positions in the emerging self-driving car market with such partners as Tesla (TSLA), Volkswagen (VLKAY)-owned Audi and Daimler (DDAIF)-owned Mercedes.
“Long term, as applications of highly parallel GPU (graphics processing unit) computing expand and developer tools and artificial intelligence algorithms mature, we anticipate our positive thesis on Nvidia will continue to play out with strong gaming GPU growth and new trends including deep learning, virtual/augmented reality, and autonomous driving catalyzing new market growth,” Ramsay said in a report.
But he sees near-term challenges for the stock.
“However after almost staggering financial and stock out-performance during calendar 2016, we believe overall revenue and (earnings per share) growth and Nvidia stock performance may plateau near term before re-accelerating in calendar 2018,” he said.
Ramsay reiterated his buy rating on Nvidia, but cut his price target to 125 from 130.
Nvidia was up 1%, near 101.75, in midday trading on the stock market today. Nvidia stock has been in a period of consolidation for nine weeks, with a buy point of 121.02.
IBD’S TAKE: Nvidia is currently ranked No. 3 on the IBD 50 list of top-performing growth stocks.
Nvidia was a huge winner on the stock market last year, climbing 224% in value. This year, it is down 5%. It hit an all-time high of 120.92 on Feb. 7, but now trades below its 50-day moving average, a key support level.
Ramsay anticipates slower gaming processor growth and tough year-over-year comparisons for the company, as well as stronger competition in graphics processing units from Advanced Micro Devices (AMD). Nvidia also faces the end of royalty payments from Intel (INTC), he said.
“While we believe Nvidia represents a compelling growth story exposed to several secularly attractive markets and we continue to recommend shares as an overweight holding for long-term investors, we are lowering near-term gaming GPU growth estimates and our price target,” Ramsay said.
Nvidia Downgraded; Shares Undercut Key Support Level