Bernstein Downgrades 'Hamstrung' Nvidia

NVIDIA Corporation NVDA has bounced back after a horrendous second half of 2018, but one Wall Street analyst said Monday that Nvidia is far from out of the woods.

The Analyst

Bernstein analyst Stacy Rasgon downgraded Nvidia from Outperform to Market Perform and lowered the price target from $250 to $170.

The Thesis

Rasgon has been struggling with what Nvidia’s aggressive guidance cut several weeks ago means for Nvidia’s mid-term outlook. After digging a bit deeper into the market dynamics Nvidia is up against, Rasgon said Nvidia shares will remain "hamstrung" for now.

“While acknowledging the recent stock declines (and admittedly disliking revising ratings after bad news, as well as right before earnings), on balance we believe current dynamics suggest moving to the sidelines,” Rasgon wrote in a note.

He said Nvidia’s most recent guidance cut seems to be driven mostly by softening demand rather than missteps in execution or a simple inventory flush. It has also called into question just how strong the true run rate of Nvidia’s gaming business will be in the long term.

Rasgon still has strong conviction in Nvidia’s datacenter demand, but each quarter raises the bar even higher for Nvidia as it laps some extremely impressive growth numbers from a year ago.

In addition, uncertainty about the China market and a potential lull in near-term cloud spending create headline risk for the stock in 2019. Even if Nvidia’s numbers recover in 2020 and beyond, Rasgon said the days of earnings multiples above 30 are likely over for Nvidia.

Price Action

Nvidia shares hit an intra-day low of $144.65 Monday morning. The stock traded around $147.60 per share at time of publication.

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