Thomson Reuters
Nvidia co-founder and CEO Jensen Huang attends an event during the annual Computex computer exhibition in Taipei
- Nvidia lowered its fourth-quarter revenue guidance two weeks ago, citing weaker economic conditions in China and disappointing sales of its gaming and datacenter platforms.
- Berstein has subsequently lowered its price target and rating for the chip maker, saying the latest cut appears much more fundamentally demand-driven.
- Nvidia is set to report fourth-quarter earnings after Thursday's closing bell.
- Watch Nvidia trade live.
The chip giant on January 28 lowered its fourth-quarter revenue guidance to nearly $2.2 billion, down from its previous expectation of around $2.7 billion, citing significantly weaker economic conditions in China and disappointing sales of its gaming and datacenter platforms.
"The latest cut appears much more fundamentally demand-driven, with the question of the 'true' run-rate of the gaming business remaining up in the air for now," a group of Berstein analysts led by Stacy Rasgon said Monday in a note titled "A splash of cold water? Downgrading to Market-Perform."
The team slashed its price target to $175 from $250, and changed the bullish "outperform" rating it had held. Nvidia shares were down as much as 3.21% to $143.42 apiece early Monday after the note was published.
"We still believe in the long-term datacenter story," Rasgon said.
"But this is not like 18 months ago, when the absolute $ amounts were small, YoY growth was massive, and expectations had plenty of room to move higher. Now NVDA has to show ever-increasing growth off of a base that is growing ever larger. Headline risk likely to continue increasing. And tactically the near-term cloud spending environment is unfavorable, driving near-term downside."
Last quarter, Nvidia cited weakness due to an excess of mining graphics processing units for cryptocurrency amid a massive decline in the price of digital coins last year.
Analysts have also noted Nvidia's struggles with its transition to ray-tracing chips. Ray tracing, which allows for more cinematic and realistic visuals, is a niche technology that Nvidia has been touting in its GPUs. Early January, the company introduced the GeForce RTX 2060, its cheapest graphics card that can provide ray tracing.
"When you turn on the ray tracing, it affects the overall performance of the GPU pretty substantially," Christopher Rolland, a semiconductor analyst at Susquehanna International Group recently told Markets Insider.
"Nvidia promises people real-time ray tracing, but you practically can't use it. That's definitely a disappointment."
The company is set to report fourth-quarter earnings after Thursday's closing bell. Analysts surveyed by Bloomberg are expecting $0.84 adjusted earnings per share on $2.3 billion in revenue.
Nvidia was up 10% so far this year.
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