Shares of NVIDIA Corp. (NVDA) fell nearly 5% Monday amid a larger sell-off in chip stocks and a bearish note from a team of analysts on the Street who see the company at risk of waning demand for its graphic processing units (GPUs) used in digital currency mining demand this year. Bulls, on the other hand, see recent weakness in NVDA shares as an opportunity to buy on the dip as the semiconductor manufacturer gains on product leadership in growth markets such as artificial intelligence (AI), gaming, virtual reality and autonomous cars. (See also: NVIDIA at Risk Over Cryptomining Exposure: GS.)
On Sunday, Wells Fargo Securities lowered its profit forecast for NVIDIA on a significant dip in ethereum prices in 2018, as reported by CNBC. In a note titled, “We See a Significant Rise In Risk” Wells analysts David Wong reiterated his underperform rating on NVDA and a $100 price target, reflecting a 56% downside from Monday morning as shares trade up 2.6% in pre-market.
“In recent months ... we felt that there were multiple risks associated with Nvidia's exposure to cryptocurrency mining and our concerns over the sustainability of Nvidia's gaming, automotive and datacenter growth," wrote Wells. As a result, the analyst trimmed his already below-consensus earnings per share (EPS) and revenue estimates.
At a price of $407.33 as of 13:12 UTC on Monday, ethereum represents a 807% spike over the most recent 12 months, yet an over 70% decline from highs reached in Jan 2018, according to Coinbase. Wong expects a slump in demand for GPUs to impact July 2018 and subsequent quarters, bringing fiscal 2019 EPS at $5.26, compared to his previous estimate at $5.39.
Doubling Down on AI, Gaming
Not all on the Street are so pessimistic. In a note to clients Tuesday, Bank of America Merrill Lynch reiterated its buy rating on shares of the Santa Clara, California-based chipmaker and added it to its US1 top ideas list.
BofA's Vivek Arya dubbed NVDA "one of the more unique investments in semis/technology, levered to multiple 10x growth markets in AI, gaming, virtual reality and autonomous cars." While the chip stock faces near-term risk of a broader sell-off in high-growth tech stocks, alongside fears regarding a crypto-plunge and negative headlines surrounding self-driving cars, the analyst argued that recent bearishness creates an "enhanced opportunity" ahead of product launches.
He expects NVDA to gain 32% over 12 months to reach $300. Indicating that concerns over a drop off in crypto-mining demand are overblown, Arya noted that selling prices for NVDA cards remain 50% above suggested list prices, which he views as demonstrating the strength of underlying demand from PC gamers.
BofA highlighted the booming popularity of eSports around the world as a growth driver for NVDA. "The next catalyst for PC gaming could be launch of new Volta based gaming GPUs (1100 series) in 2H18," wrote Arya. He foresees further opportunity in the data center and AI chip space, where NVDA has just 5% of the $50 billion market. (See also: AMD, NVIDIA at Risk on New Cryptocurrency Chip.)