Analyst Defends NVIDIA After the Drop

NVIDIA Corp. (NASDAQ: NVDA) was battered after a pair of analyst downgrades on Tuesday, taking about 5.3% in value of the stock. On Tuesday we saw that Evercore Partners cut the rating to Underweight and Susquehanna cut the rating to Neutral. Now today we have Canaccord Genuity's analyst named Bobby Burleson out defending NVIDIA. The thesis here is rather simple: its fundamentals are holding up better than its PC-leveraged peers.

Canaccord is maintaining its Buy rating and a $20.00 price target versus a $13.27 closing price.

Today's call is based upon seven-times the forward P/E, if you back out the $5 in cash on the books, as the GPU product cycle "continues to drive better fundamentals than the general PC vertical, evidenced by divergent upstream trends in channel checks."

The note also said that diversifying drivers should help Tegra to mitigate some weakness from soft HTC One demand and that the Kepler momentum continues while Tegra diversifies with high single-digit growth expectations for Kepler in the third quarter.

Burleson noted:

Outside of NVDA, upstream checks indicate substantially lower inventory needs for PC-weighted names versus prior checks, as a lack of seasonal growth weighs on the vertical. We believe moderate upstream adjustments by NVDA are likely for Tegra where HTC One demand has weakened. For tablets, we expect sell-through to remain healthy due to low price points and better performance versus prior-gen Android tablets, while sell-in accelerates on new product launches. Longer term, NVDA's bundled LTE solution for smartphones should drive design wins as an alternative/second source to QCOM.

Another addition here is that Canaccord's report said that NVIDIA expects to launch an integrated single-chip Tegra3+Icera LTE baseband by early calendar 2013 and that could garner considerable attention around Mobile World Congress.


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