Can Nvidia Fend Off Competition From Intel And Advanced Micro Devices?

NVIDIA Corporation NVDA, one of 2016's hottest stocks, is now lower by more than 8 percent since the start of 2017 amid competitive and valuation concerns — not to mention Wall Street analysts turning sour on the company's outlook.

BMO Capital Markets' Ambrish Srivastava is among the growing crowd on Wall Street who doesn't hold a bullish view of the company. In a research report, the analyst reiterated an Underperform rating on Nvidia with a $85 price target.

According to Srivastava, Nvidia's stock is overvalued at the "perfect storm" that drove the 2016 surge is now over, as the competitive environment is changing and this isn't factored into the stock.

Srivastava's analysis of Nvidia's gaming business, which accounts for around 57 percent of revenues, shows the "impact a product cycle can have on numbers." Moreover, a successful node transition to FINFET drove a better-than-expected performance improvement and a longer duration than the analyst expected between product launches.

This resulted in Nvidia benefiting from a meaningful pent-up demand, which significantly impacted the company's unit sales and average selling prices. However, the analyst isn't expecting this headwind to repeat anytime soon, especially since Advanced Micro Devices, Inc. AMD will boast a competitive high-end offering after being absent from the space.

Nvidia's Other Business Lines

Srivastava's datacenter business represents approximately 12 percent of total revenues and earned a reputation of being synonyms with the artificial intelligence space. But this thinking may not hold over time as Intel Corporation INTC is working on a refreshed lineup and can perhaps beat Nvidia on pricing.

Finally, if Nvidia's gaming and datacenter business suffer, its advanced driver assistance systems segment won't be able to "save the day," as the unit represents just 7 percent of total revenues.

See Also: Jim Cramer Thinks Nvidia Remains A 'Frighteningly Positive Story'

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