NVIDIA Corporation (NASDAQ:NVDA) shares are currently dipping almost 4% on the heels of Nomura analyst Romit Shah sounding the alarm on the chip giant. Pinpointing underlying concerns with the gaming sector, the analyst downgrades NVDA from a Buy to a Reduce rating while reigning in the price target from $100 to $90, which represents a just under 16% downside from where the stock is currently trading.
Not only does Shah recognize a deceleration occurring in the sector, he indicates consensus is not giving enough credence to the warning signs. “We believe consensus is underappreciating a slowdown in gaming and the potential negative impact to the multiple. We recommend investors take profits and rotate into Intel (INTC/Buy),” advises Shah. Though Intel Corporation (NASDAQ:INTC) investor confidence has not been at a high on back of a rocky analyst meeting, Shah in fact sees more upside for INTC shares than for NVDA shares.
Moreover, the analyst opines, “We believe datacenter and automotive will be solid long-term growth drivers, but the implied value that the market is ascribing to these emerging businesses is unsustainable”
For those who continue to be bullish on the stock, Shah warns, “In addition to a significant premium to comps, investors should recognize that the market’s enthusiasm for Nvidia’s emerging businesses is historically short-lived.”
In a see-saw of momentum, where market sentiment tends to rock on a back-and-forth pendulum regarding the giant’s businesses, the analyst sees gaming business as the crux of whether the Street turns confident or pessimistic on NVDA, deeming it a “lock-step” dance. “In other words, we’ve found that when gaming exceeded expectations, the market assigned higher value to Nvidia’s emerging businesses, resulting in multiple expansion. Conversely, when gaming contracted, we believe the market became less enthusiastic, resulting in multiple compression,” Shah concludes, determining “gaming has more downside risk this year.”
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance According to TipRanks, five-star analyst Romit Shah is ranked #180 out of 4,494 analysts. Shah has a 64% success rate and earns 14.2% in his annual returns. When recommending NVDA, Shah gains 38.1% in average profits on the stock.
TipRanks analytics indicate NVDA as a Buy. Based on 28 analysts polled by TipRanks in the last 3 months, 15 rate a Buy on NVIDIA stock, 10 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $115.78, marking a nearly 5% upside from where the shares last closed.