Citi Says Concerns Related To NVIDIA And Gaming Market Are 'Misleading'

One of the hottest stocks in the market in the past two years, NVIDIA Corporation NVDA, has started off April on shaky ground, dropping more than 7 percent so far this month.

Earlier this week, Pacific Crest analyst Michael McConnel downgraded NVIDIA to Underweight, citing “signs of desktop GPU market saturation, lower margins from incremental Nintendo Switch revenue and a possible pause in the company’s datacenter business this summer.”

On Wednesday, Citi analyst Atif Malik admitted that NVIDIA’s tailwinds may soon be dying down, but he says fears over the company’s long-term outlook are overblown.

“We view recent sell-side gaming market saturation concerns on the stock as both near-term and misleading,” Malik explained.

Related Link: Pacific Crest Downgrades NVIDIA To Underweight

Citi credits NVIDIA’s recent outperformance to three factors:

• The launch of new gaming consoles created demand for next-generation GPUs.
• Gaming growth in emerging markets has accelerated.
• NVIDIA gained 20 percent unit share from competitors.

Citi believes the first two drivers for NVIDIA stock will remain in place in years ahead, and Malik also expects the company’s unit share to remain steady as well.

Citi is projecting 19 percent CAGR for gaming sales through 2020.

According to TipRanks, Malik has a Buy rating and a $145 price target for NVIDIA.

NVIDIA's stock traded recently at $101.31.