Nvidia Analysts Sold On Long-Term Story, But Cautious On Data Center Weakness, Competition

NVIDIA Corporation NVDA came back strongly with its first-quarter report Thursday, with an earnings beat and revenues that slightly exceeded expectations.

The Analysts

Rosenblatt Securities analyst Hans Mosesmann maintained a Buy rating on Nividia and lowered the price target from $190 to $180.

KeyBanc Capital Markets analyst Weston Twigg maintained a Sector Weight rating.

Raymond James analyst Chris Caso reiterated an Outperform rating and $180 price target.

Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating and $170 price target.

Loup Ventures' Takeaways

Nvidia is still positioned to capitalize on providing hardware to enable the undeniable themes of AI, autonomy and gaming, Loup Ventures managing partner Gene Munster said in a Friday note. The analyst remains long-term positive on the chipmaker's story.

Munster sees risk to the full-year guidance as the company continues to work through inventory challenges based on the demand headwind from crypto declines. Nvidia is also transitioning to its Turing architecture in the gaming segment, he said. 

The July quarter guidance — though in line with the Street — is below the implied guidance issued in February, Munster said.

After a 31-percent year-over-year decline in the April quarter, the 18-percent drop expected for the July quarter suggests revenue trends are moving in the right direction, he said.

Nvidia exuded optimism about its cloud gaming; the GeForce Now cloud gaming platform, despite being in beta, has 300,000 MAUs and an additional 1 million players on the waitlist, according to Loup Ventures. 

Munster does not see any significant negative impact on the demand for high-end gaming graphics card, as he said cloud gaming platforms will likely increase the addressable PC gaming market.

Rosenblatt Remains Long-Term Bullish

Nvidia's overall execution was solid, with gaming GPU strength offsetting continued data center GPU and inventory issues, Mosesmann said in a note.

The July quarter sales guidance was in-line, but the broader outlook reflected continued uncertainty in data center inventories, the analyst said. 

Mosesmann sees the company's decision not to reiterate its original fiscal 2020 sales guidance of flat to a slight year-over-year decline as noteworthy, given that the April quarter represents a bottom cycle. 

Rosenblatt sees competitive dynamics coming into play in the coming quarters, particularly from Advanced Micro Devices, Inc. AMD in both gaming and data center.

"We remain long term bulls on NVDA and take the current reset to prudently take our PT down to $180 from $190," Mosesmann said. 

See also: Nvidia Q1 Earnings Preview: Data Center, Gaming Inventory In Focus Amid Fundamental Uncertainties

KeyBanc: Limited Visibility, High Valuation Are Deterrents

Nvidia's limited visibility and high multiple relative to peers kept KeyBanc on the sidelines, Twigg said in a Thursday note. KeyBanc lowered its estimates moderately to reflect the mixed guidance and demand commentary.

The analyst cautioned that visibility is low and demand could ramp back up sharply.

"NVDA appears to be doing well in emerging inference applications, and its new Turing products and gaming notebook platforms have good traction," Twigg said. 

Nvidia expects gaming to drive the bulk of second-quarter revenue growth, as demand for gaming notebooks improves and as NINTENDO LTD/ADR NTDOY Switch volumes pick up, according to KeyBanc. 

Raymond James: Growth Deceleration More Cyclical Than Structural

Nvidia found stability in the first quarter and looks for a solid second quarter, even as it pulled back its full-year guidance, Caso said in a Thursday note. 

With the company suggesting it is under-shipping end-market demand in graphics, the analyst said he projects a seasonal recovery later this year.

An upcoming data center training 7nm product refresh could be a strong catalyst when launched in the second half of 2020, Caso said. 

The deceleration in growth is due to cyclical — not structural — reasons, the analyst said. 

Tigress Financial: Further Upside Ahead 

The better-than-expected gaming chip results relative to a recent downtrend reflect Nvidia's evolution into a platform provider with expertise in graphics processing, computing and deep learning, Tigress Financial's Ivan Feinseth said. 

GPUs for gaming and artificial intelligence for high-performance computing and cloud data centers are Nvidia's key growth drivers, the analyst said. Nvidia is also benefiting from growing speed needs in e-sports and the ongoing cloud migration, as well as from accelerating adoption of its Volta processors and DRIVE PX2 onboard computers for the auto industry, he said. 

"I believe further upside exists from current levels and continue to recommend purchase." 

Morgan Stanley Says Nvidia A Core Holding, Waits For Pullback 

The magnitude of the data center weakness is surprising, and a recovery could be in the offing, Moore said in a Friday note.

Morgan Stanley lowered its calendar 2019 estimates slightly and maintained the 2020 numbers.

"We expect the cloud business to reaccelerate in [the second half], but at 30x next year we see that as largely priced in," the analyst said. 

"We see the stock as a core holding, and remain EW, but we would look for a pullback to get more constructive."

The Price Action

Nvidia shares rallied as much as 7 percent in Thursday's after-hours session in early reaction to the first-quarter print. The stock was trading up by 1.5 percent at $162.61 at the time of publication Friday.

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Photo courtesy of Nvidia.