Nvidia Shares Are Overvalued At Current Levels

BMO’s Ambrish Srivastava believes NVIDIA Corporation NVDA shares are overvalued at the current levels, given that “the perfect storm in fundamentals that drove the rarely seen magnitude of earnings upside is ebbing.”

The analyst downgraded the rating on the company from Market Perform to Underperform, while lowering the price target from $100 to $85.

Changing Competition

Srivastava believes that the competitive environment is also changing and is likely to be different through 2017, both for the datacenter and gaming businesses.

“In gaming, besides better end demand, we believe that NVIDIA’s successful node transition to FINFET technology, which drove a much higher performance improvement than the prior node(s), and which came a little later than what we would have expected, drove meaningful pent-up demand,” the analyst mentioned.

Srivastava does not expect a repeat of this any time soon.

Related Link: Applied Materials, L Brands, NVIDIA: Fast Money Picks For February 23

Datacenter

In the datacenter business, the analyst believes Intel Corporation INTC could pose a challenge to Nvidia, with its refreshing lineup, as well as potentially pricing, or a combination of the two.

On the other hand, Nvidia’s dominance is leading large datacenter customers to “give serious consideration” to the product lineup of Advanced Micro Devices, Inc. AMD.

In addition, the analyst believes that in Advanced Driver Assistance Systems (ADAS), “the third leg of the NVIDIA story is likely going to disappoint investors, as [...] we see limited volume for NVIDIA products in the near-medium term, or even two to three years out.”

At last check, shares were down 6.1 percent at $104.