ATI Falls on Nvidia's Woes
Shares of ATI (ATYT) tumbled Friday as investors fretted the graphics chipmaker could be hurt by the silicon price war and PC weakness cited by rival Nvidia (NVDA) Thursday when it reported a massive earnings disappointment.
But most analysts cast the ATI selloff as a buying opportunity, though the stock suffered a downgrade from Wedbush Morgan.
ATI shares were recently down $1.17, or 7.4%, to $14.72, while Nvidia was reeling, down $4.50, or 30.9%, to $10.06.
In a note downgrading ATI to hold from buy, Wedbush analyst David Wu predicted that the severe pricing actions by Intel (INTC) and the price war in mainstream discrete desktop chips "that was so devastating to Nvidia will also have a measurable impact on ATI's fiscal fourth quarter." He cut his earnings estimate for ATI's fourth quarter to 18 cents from 25 cents (compared to a consensus estimate of 21 cents). Wedbush hasn't done banking for ATI.But a handful of other analysts said Nvidia's problems are company-specific and don't augur similar shortfalls at ATI. Indeed, over the past year ATI has made substantial inroads into the graphics chip business once dominated by Nvidia, helped by its greater exposure to notebooks, which have been steadily increasing as a share of PC sales. Reflecting the market's greater confidence in ATI, as of Thursday's close its shares had gained 23% from year-ago levels, while Nvidia shares had lost 29% of its value. CIBC analyst Rick Schafer pointed out in a note that Nvidia's troubles stem mostly from weaker pricing and volumes in lower-end graphics chips, where Nvidia has much greater exposure than ATI. Other problems owe to Nvidia's market-share loss, but Schafer said ATI has been taking share. He has an outperform rating on ATI. Still, he said he's somewhat tempered his view on ATI in the near term. "While we believe our August quarter's $535 million and 21 cents EPS estimates are achievable, we do not expect ATI will significantly beat forecasts as they have the past several quarters," he said. CIBC doesn't have an investment banking relationship with ATI. Likewise, Scotia Capital said it's keeping its outperform rating on ATI, noting the Canadian-based graphics chipmaker has scored the majority of design wins based on Intel's PCI Express, which bodes well for future growth. ATI also has already disclosed it would be aggressive on pricing and has subsequently gained share, Scotia noted, adding that it believes Intel's desktop share gain wins "did more damage to Nvidia than ATI." Scotia doesn't have an investment banking relationship with ATI.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV