Nvidia Thesis 'Played Out,' Needham Cautions

• NVIDIA Corporation NVDA shares have gained 40 percent in the last three months, after hitting a low of $20.28 on August 25.
• Needham’s Rajvindra S. Gill downgraded the rating on the company from Buy to Hold.
• Following the significant decline in the company’s shares, the stock appears fairly valued, Gill said.

Nvidia’s shares have surged 63 percent since August 7, versus a rise of about 8.5 percent for the S&P 500.

“NVDA has transformed itself into a platform business and ceased investing in the modem/application processor market, a wise decision, in our view,” analyst Rajvindra Gill said, while adding, however, that the investment thesis had largely played out and the stock appears fairly valued at current levels.

Gill commented that there had not been any tangible evidence of the company being able to replace the royalty payments from Intel Corporation INTC. Moreover, the current share price seems to be discounting Nvidia’s core earnings.

“We await tangible signs that the licensing business is being replaced before becoming more constructive on the name,” the analyst added.

Gill pointed out that the Street’s estimate of 1.9 percent sequential growth could prove to be aggressive, in view of the soft PC environment and broad macro slowdown that has impacted the consumer market.