| The stock market moves in mysterious ways and today was no exception as NVIDIA share prices dropped over 16% after reporting record revenue and profits yesterday for the quarter ended on 1/27/2008. The stock began the day trading at $27.02 per share and ended up at $22.16 per share. Trading was heavy with 54.5 million shares changing hands or 4x the average. It's obvious that large institutions were selling shares, thus driving the price down. 
A number of financial analysts have provided reasons leading to the decline, which include:Mark Lipacis, Morgan Stanley: "This is the first quarter in a year where the company didn’t materially beat and raise expectations," he writes. Lipacis maintains his Underweight rating, and cuts his price target to $23 from $32. His EPS estimates drop to $1.41 form $1.50 for the January 2009 fiscal year, and to $1.37 from $1.61 for FY 2010.
Sidney Ho, Merrill Lynch: "The stock looks fairly valued to us, especially considering the weakening economy and the high likelihood that AMD will regain share this year." He remains Neutral on the stock. W. Blake Fischer, Stifel Nicolaus: "Given our stance on the developing risks for Nvidia, and the resulting potential of an inflection in growth rates and market share, as well as weaker margin leverage trends, we are maintaining our Sell rating."
Doug Freedman, American Technology Research: "We are increasing our estimates, but note that expense growth is accelerating. We worry about total market growth and the emergence of better execution from AMD/ATI and Intel." His rating remains Neutral. Michael McConnell, Pacific Crest: He notes that this was the first sequential decline in margins in 13 quarters. He cut his target price to $31, from $34, but maintains an Outperform rating. Nicholas Aberle, Caris & Co.: Aberle writes that he sees a difficult first half, "in light of a tightening competitive landscape and general macro-related consumer softness." He maintains a $28 target and Average rating. Bobby Burleson, Canaccord Adams: He maintains a Sell rating, and contends "negative data points around the health of PC demand post Chinese New Year are likely to weight on Nvidia." Arnab Chanda, Deutsche Bank: "Caution is warranted given that calendar '08 for NVDA may be challenging driven by a slower-than-expected PC environment, share loss in laptops, share peaking in desktops and Intel share gains offset by AMD share loss in chipsets." His rating remains Hold. Although I'm not a financial advisor, nor do I own NVIDIA stock, I believe that Amab Chanda of the Deutsche Bank provides the best guidance. Some of the other reasons seem to be nothing but hot air, which is a great tactic to cause a devaluation of a stock in order to re-buy shares at lower prices. However, NVIDIA’s operating expenses are due to increase by 8-10% as a result of the acquisition of Ageia. Other reports mention that a jump in expenses "will likely come from few employee vacation days in the first quarter and higher tax charges." As hard-core gamers and fans of NVIDIA and their products, there are things that we know that financial analysts may not know about or think unimportant. For example, analysts predicting that NVIDIA is going to lose market share to as a result of better execution by AMD/ATI seems pretty far fetched for 2008. Based on what we’ve witnessed during the past year, NVIDIA has pretty much been sitting back and "toying" with AMD/ATI with their GeForce 8 GPU, which is well over a year old. With the GeForce 8, NVIDIA has been able to meet and exceed most competing AMD/ATI GPUs in price and performance. However, that’s not to say that CEO and President of NVIDIA Jen-Hsun Huang has no respect for AMD/ATI as he makes the following statements in their earnings conference call yesterday. In the notebook segment, AMD has wonderful offerings. Don't forget that AMD still has a terrific GPU design organization and so between NVIDIA and ATI, or AMD, it is the unambiguously the two best GPU design teams the world has ever seen. And so I give them a lot of respect and in the AMD notebook segments, the lower end segments, it is hard for us to differentiate relative to AMD. And as I said earlier, if we can't differentiate, we don’t typically win the business. And so I'm not surprised and we're not expecting to win any of those. We are going to fight hard for them but in the final analysis, I think AMD has good offerings there. In the upper half of the market, we have quite a bit of differentiation. Our advantage is that we invest more in GPU development than any company in the world today and potentially all of the competitors combined. And so our R&D investment, our commitment to GPUs, our velocity of innovation, that is our advantage on the upper half of the market, whether it’s notebooks or otherwise. So we have to -- that’s a -- that’s our velocity, our commitment and our level of innovation and level of investment is a structural advantage and so we have to sustain that.
So, are we ready for the GeForce 9 Series? You bet!Note that the comments from the conference call were provided courtesy of Seeking Alpha. |
