Nomura Stands By Nvidia Downgrade, Recommends More Defensive Names

Nomura stands by its recent downgrade of NVIDIA Corporation NVDA to Reduce, citing higher inventories and slowdown in gaming behind its cautious outlook, and investors have overlooked significant inventory rise in the January quarter.

“Bulls argue that the change in inventory reflects higher costs for Nvidia’s GTX 1080 Ti graphics card, which is expected to launch in March;  however, the inventory turnover ratio suggests otherwise,” analyst Romit Shah wrote in a note.

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Meanwhile, Shah raised his CY2017 EPS outlook to $2.71 from $2.69, but cut his CY2018 EPS view to $2.84 from $3.10.

Shah, who has a target price of $90 on the stock, recommends investors move on to more defensive names such as Intel Corporation INTC.

“Our thesis is that consensus is underappreciating a potential slowdown in gaming and the impact to valuation,” Shah added.

At last check, shares of Nvidia were up 0.96 percent to $102.45. The stock is down more than 9 percent over the past month.