Analysts React To Nvidia's Guidance Cut

NVIDIA Corporation NVDA stock took a beating Monday after the company cut its guidance and said a weakening China market will have a significant impact on revenue growth. Nvidia lowered its revenue guidance due out Feb. 14 from $2.7 billion to just $2.2 billion, a move that tanked the stock by 14 percent.

Several Wall Street analysts have weighed in on what the guidance cut means for Nvidia investors. Here’s a sampling of what they’ve had to say.

China To Blame

Gene Munster said the China slowdown, falling demand for high-end Turing GPUs and a more cautious customer approach to datacenter upgrades are the primary causes of the weak quarter.

“That said, we believe longer-term (2+ years) the company will regain its footing and success as it builds the GPUs to ride three mega growth curves: gaming, datacenter, automotive,” Munster wrote in a blog post.

Needham analyst Rajvindra Gill said slowing revenue growth exposes just how overvalued Nvidia stock is based on earnings alone.

“Although the shares have fallen sharply, we believe end demand will deteriorate further in its core markets, gaming (54% of sales) and datacenter (25%) driven by an ongoing deceleration in the Chinese economy,” Gill wrote in a note.

Morgan Stanley analyst Joseph Moore said the weak gaming guidance was particularly disappointing.

“We like the company's long term position, we just think it will take more than one quarter for visibility to resume, and potentially longer for investor confidence to come back,” Moore wrote.

Buying Opportunity

UBS analyst Timothy Arcuri said Monday’s steep sell-off has finally provided long-term investors with a reasonable price to buy.

“Important Q's remain unanswered, but we believe the ~20% miss to FQ4:19 (Jan '19) revenue and -15% stock move finally sets the stage for a new positive revision cycle starting this summer,” Arcure wrote.

Tigress Financial analyst Ivan Feinseth said investors should expect Nvidia stock to trade mostly sideways from here until investors get some positive news from China or from the company: “I view what is happening as a bad time for a good company which is usually a buying opportunity."

MKM Partners analyst Ruben Roy said Nvidia’s datacenter business should rebound in Q3 and its gaming business should be back on track by the end of the year.

“We expect double digit growth for both the gaming and data center segments in fiscal 2021,” Roy wrote.

Ratings And Price Targets

• Needham has an Underperform rating.
• UBS has a Buy rating and $180 target.
• Morgan Stanley has an Equal-Weight rating and $148 target.
• MKM has a Neutral rating and $148 target.

Nvidia traded at $131.71 Tuesday afternoon, down another 4.5 percent.

Related Links:

Morgan Stanley Downgrades Nvidia, Faces 'More Significant Challenges' Than Expected

UBS Turns Bullish On Nvidia After Guidance Cut, Sees Buying Opportunity