NEW YORK (TheStreet) -- Shares of Nvidia (NVDA) - Get NVIDIA Corporation Report were falling 2.9% to $22.78 Monday after Goldman Sachs downgraded the graphics card manufacturer to "sell" from "neutral."
The analyst firm set a price target of $20 for the chipmaker.
Goldman Sachs analyst James Covella views Nvidia as a "high-quality company with best-in-class technology and strong management," but warned of a potential "licensing cliff." Covella said, "We believe the market has become complacent about the risk of Intel licensing revenue going away (with few sell-side analysts highlighting licensing in analyst day takeaways)."
The analyst continued, "Our SanDisk, Qualcomm and pharma case studies suggest stocks see 15%-60% multiple compression going into binary events where licensing/patents are in jeopardy. We believe the near-term catalyst to refocus investor attention on longer-term normalized EPS will be weakness in PC fundamentals (which Nvidia noted it is not seeing at its analyst day). We highlight that business tied to the broader PC ecosystem is 55% of EBIT today, with PC OEMs particularly at risk (15%-20% of EBIT ex. licensing)."
Separately, TheStreet Ratings team rates NVIDIA CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate NVIDIA CORP (NVDA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Powered by its strong earnings growth of 40.00% and other important driving factors, this stock has surged by 25.12% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NVDA should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- NVIDIA CORP has improved earnings per share by 40.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NVIDIA CORP increased its bottom line by earning $1.12 versus $0.74 in the prior year. This year, the market expects an improvement in earnings ($1.19 versus $1.12).
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.5%. Since the same quarter one year prior, revenues slightly increased by 9.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The current debt-to-equity ratio, 0.32, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 5.69, which clearly demonstrates the ability to cover short-term cash needs.
- You can view the full analysis from the report here: NVDA Ratings Report