NVIDIA Corporation (NASDAQ:NVDA) shares are starting to feel the heat from weakness in its graphics chip business just as Amazon.com, Inc. (NASDAQ:AMZN) is ready to accelerate in international market growth. While BMO tackles NVDA from a perspective where the analyst sounds the alarm on gaming, Needham gets bullish on Amazon thanks to new market opportunities that could stand to bring the online auction and e-commerce leader a multi-billion dollar reward. Let’s take a closer look:
NVIDIA’s Achilles’ Heel: Its GPU Segment
Should investors be eyeing NVIDIA from a bearish stance? A glimpse into video game market sales reveals a rocky road could suddenly twist to face the chip giant’s gaming segment. BMO analyst Ambrish Srivastava warns of weakness ahead, as he assesses that the graphics chip business has put a strain on the stock.
In reaction, the analyst reiterates an Underperform rating on shares of NVDA with a $85 price target, which represents a just under 13% downside from where the stock is currently trading.
Srivastava notes, “We are also starting to track desktop graphic cards shipments from what we believe to be a representative group of vendors. […] For 1Q, our data suggests that shipments were down 16% q-q, much lower than three- year seasonality of down 6%. We believe this represents weakness in the channel versus the super-charged growth we have seen in the past several quarters, particularly for NVIDIA’s graphics business. We also believe this data suggests that weakness in NVIDIA’s gaming business might show up earlier than we had anticipated. We had expected comparisons to become weaker for this business as the year progressed.”
“Our checks suggest that the timing of mass production shipments of new AMD products, the ironing out of compatibility-related issues with new products, and weaker demand in Europe and China weighed on 1Q17 motherboard shipments,” contends the analyst.
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 Ambrish Srivastava is ranked #323 out of 4,560 analysts. Srivastava has a 72% success rate and yields 14.4% in his annual returns. When recommending NVDA, Srivastava gains 33.6% in average profits on the stock.
TipRanks analytics indicate NVDA as a Buy. Out of 25 analysts polled by TipRanks in the last 3 months, 13 are bullish on NVDA stock, 7 remain sidelined, and 5 are bearish on the stock. With a return potential of 17%, the stock’s consensus target price stands at $114.48.
Amazon Gets an Upgrade with Billions on Billions Waiting in the Wings
Needham analyst Kerry Rice sees new light for the bull case on Amazon now that the online auction and e-commerce leader has solidified its domestic “dominance” while gearing up to tap into “several multibillion TAM [total addressable market] opportunities.” Prospects from advertising to new grocery stores to “home services” all could bring forth “substantial upside optionality” to the stock.
Therefore, the analyst upgrades from a Hold to a Buy rating on AMZN with a $1,000 price target, which represents a 10% increase from where the shares last closed.
“Leveraging its U.S. playbook, we expect international market expansions to drive Amazon’s long-term growth,” predicts Rice, who believes Amazon Web Services “continues to be a driver of bottom line growth.” Globally, the analyst highlights the Prime program as having evolved in its “successful execution,” taking almost 10 years to launch in the U.S., Germany, the U.K., and Japan, but having since “significantly shortened the lag time in recent years […].” Conversely, Prime launches in Italy, Spain, India, and Mexico merely took between one to three years for a launch.
“Unlike competitors who spend significant marketing dollars to ramp consumer adoption, Amazon could leverage its existing consumer and seller bases to drive adoption of new products or services, creating a substantial competitive advantage. For example, groceries or home services markets are just category expansions on its e-commerce platform. Similarly, Amazon could increase its advertising revenue by adding new products and tools that offer advanced advertising features for its merchants,” continues Rice, who also sees a competitive upper hand for Amazon’s Home Services segment.
Furthermore, the analyst breaks down a four-part bull case as to AMZN’s strength in its Home Services. First, Rice points to an already ready-made consumer base that already gives the segment a leg up. From stellar customer service and a pledge for quality to an interface AMZN consumers will recognize from buying additional products from the company to a “bundling feature” that is consumer-friendly with offers to install if a television is bought on the website, the analyst sees plenty of reasons for the segment to score in terms of long-term gains.
Lastly, “We believe Amazon is better positioned than its competitors to capture mobile market share,” Rice concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Kerry Rice is ranked #555 out of 4,560 analysts. Rice has a 59% success rate and realizes 8.0% in his yearly returns. When recommending AMZN, Rice earns 0.0% in average profits on the stock.
TipRanks analytics exhibit AMZN as a Strong Buy. Based on 29 analysts polled by TipRanks in the last 3 months, 28 rate a Buy on Amazon stock while 1 issues a Sell. The 12-month average price target stands at $976.35, marking a nearly 8% upside from where the stock is currently trading.