Credit Suisse Sounds Alarm On Risks To Nvidia Estimates

NVIDIA Corporation NVDA, which made a recovery in the new year along with other tech stocks, came under selling pressure Tuesday in reaction to a note from Credit Suisse that delved into inventory overhang and reduced forecasts.

The Analyst

Analyst John Pitzer maintained an Overweight rating on Nvidia with a $225 price target.

The Thesis

Excess graphic inventory is likely to persist into the April quarter, with channel checks suggesting elevated 1060 inventories due to slower demand and the reluctance of original design manufacturers to reduce average selling prices, Pitzer said in a Monday note.

Nvidia's January quarter is tracking in line with the guidance of $2.7 billion in revenue and $1.40 in EPS, the analyst said, but he sees risk to April quarter estimates.

Pitzer lowered the quarter's revenue and EPS estimates from $2.83 billion and $1.53, respectively, to $2.67 billion and $1.40. The analyst also reduced FY20/21 EPS estimates from $7.48 and $9.30, respectively, to $7.10 and $9.

The analyst said he expects additional cuts, as most Street estimates have not been adjusted since the Q3 print released in November.

Credit Suisse expects ASP declines and inventory digestion for 1060 to accelerate given the introduction of the midrange RTX 2060 at a compelling ASP of $349 and performance.

The April quarter could mark the trough for gaming, with sequential growth to resume in the July quarter and year-over-year growth in the January quarter of 2020, Pitzer said. 

"Our work suggests $700 million in excess NVDA channel inventory at the end of October," comprised of a $475-million reduction in the January quarter and the remainder in April, the analyst said. 

Credit Suisse stuck with an Outperform rating on the basis of optimism tied to strength in the data center segment, upside to Pro Vis and the re-acceleration of gaming in 2021. 

The Price Action

Nvidia shares were down 4.21 percent at $137.36 at the time of publication Tuesday. 

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