Barclays Downgrades Nvidia, Likes Skyworks, Cirrus And Others

• NVIDIA Corporation NVDA shares have been on an upward trend for the past six months, and have gained 40 percent since July 15.
• Barclays’ Blayne Curtis downgraded the rating for the company from Equal-Weight to Underweight, while raising the price target from $23 to $25.
• Nvidia’s shares may underperform in 2016, having surged past its fundamentals, Curtis stated.

Nvidia’s shares surged 64 percent in 2015, versus a 3 percent decline in SOX. The shares were driven by “growth in gaming and excitement about VR and Automotive,” analyst Blayne Curtis mentioned. He added, however, that the company’s fundamentals need time “to catch up to the hype” and its stock could be an underperformer in 2016.

Curtis expects Nvidia to report its Q4 revenue in-line to ahead of the consensus estimate of $1,308M. “Net net, Gaming PC demand appears to have become less volatile than the overall PC market, and NVDA has benefited from that trend along with share gains in the discrete market.”

Although growth of Nvidia’s Gaming segment has recently been robust, more than 40 percent Y/Y though CQ3, this rate would be “difficult to sustain” as the market becomes “more fully penetrated.”

In the report Barclays noted, “Tegra was likely seasonally strong as well (est. up high single digits) as the unit continues to see good traction in Autos and mobile declines slow.” Curtis expects Nvidia to guide Q1 roughly in-line with consensus. While both major segments are likely to be seasonally down, this would be less than the PC market, with gaming demand being better than the broader market.

The analyst cited the favorite names through earnings as:

• Cirrus Logic, Inc. CRUS – [Rated: Overweight, PT at $39] – Shares have been under pressure due to Apple-related weakness. “We believe they will once again grow their content at Apple in the IP7 with the inclusion of ANC in the earpods,” the report stated.
• Cavium Inc CAVM – [Rated: Overweight, PT at $80] - Curtis cited this as the Top Pick. While guidance could come slightly soft, Cavium’s shares have declined, while growth drivers have continued to track positively.
• Skyworks Solutions Inc SWKS - [Rated: Overweight, PT at $93] – “Apple weakness is now well known and our forward estimates already reflect this weakness,” Curtis mentioned. He expects a rebound in shares as the focus shifts towards an improved IP7 cycle, where Skyworks is a content gainer.