Nvidia Downgraded on Growing Coronavirus Risk to Chip Industry

Nvidia was downgraded to reduce from neutral by Nomura Instinet.
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Nvidia (NVDA) - Get Report was downgraded to reduce from neutral Tuesday by an analyst at Nomura Instinet who said the deadly coronavirus has posed a growing risk to the global semiconductor industry over the last few weeks.

Shares were up 1.4% to $276.86 in premarket trading.

Analyst David Wong also cut his price target on shares of the Santa Clara, California-based company to $230 from $235

"While there has been a lot of attention on the supply chain disruptions associated with COVID-19," Wong said in a research note, "we think many investors and companies mayhave underestimated the risk of the current issues impacting electronics end marketdemand through 2020."

Wong said that Nvidia's gaming segment accounted for 56% of total revenue inthe January 2020 quarter, adding that he viewed the company's gaming GPUs and Nintendo Switchbased chips to be consumer discretionary items.

"We think the economic dislocations resulting from the COVID-19 outbreak pose risk to demand in most electronic end markets," he said, "though we believe the end markets associated with consumer purchases might have the most potential downside."

Wong said that while Nvidia's high stock multiple is supported, in part, by investor expectations that the company's data center GPU's will capture a steadily increasing share of the overall data center processor market, "Nvidia appears to have lost some of its momentum in the recent downturn (4Q18-3Q19.)"

"We question whether NVIDIA’s GPU products have enough application breadth to meaningfully outgrow the data center processor market in the future," he said.

Wong said the coronavirus may also have an impact on automotive demand. Many investors continue to view Nvidia as the leader in autonomous driving chips, Wong said, but over the last several quarters, Intel’s (INTC) - Get Report Mobileye sales "have pulled meaningfully above Nvdia's automotive sales."

"We believe Intel is consolidating its position as the leading provider of processors for autonomous driving," he said.

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