Analysts: NVIDIA Still Tied To PC Demand

NVIDIA Corporation NVDA extended its losses Friday on a weaker-than expected outlook while a number of analysts trimmed their forecasts.

The company said currency headwinds and continued weak demand for personal computer components will hurt results going forward.

The semiconductor concern traded down more than 7 percent recently to $20.91.

"Guidance was very weak," Pacific Crest's Michael McConnell said, noting high inventory and a "pronounced demand correction" among PC customers.

McConnell cut his fiscal 2016 earnings estimate 34 percent to $0.77 a share, maintaining a Sector Weight rating on the company.

Despite efforts to diversify its business into computer gaming components and self-driving cars, the company's outlook "reminds us that the company is heavily exposed" to the market for personal computers, Deutsche Bank's Ross Seymore said.

Seymore maintained a Hold rating and $19 target.

MKM's Ian Ing said he miscalculated NVIDIA's exposure to PCs.

"It was worse than we expected," Ing said, of recent results, maintaining a Neutral rating and $24 target.

A licensing deal with Intel Corporation INTC is set to expire next year and Ing said it's unclear whether its estimated annual earnings contribution of $0.40 cents a share can be replaced.

A successful outcome of current patent litigation with Qualcomm, Inc. QCOM and Samsung Electronics Co. SSNLF might fill the gap.

Jefferies Mark Lipacis said he's impressed by recent growth in NVIDIA's gaming business and efforts to supply the automotive industry with components for self-driving cars.

Those high-growth segments make Lipacis "incrementally positive," although he maintained a Hold rating and $22 target, citing valuation excluding the company's royalties from Intel.

But analysts from both JMP Securities and RBC maintained Outperform ratings on NVIDIA, citing the company's recent diversification efforts.

"The PC weakness is transitional," RBC's Doug Freedman said.

JMP's Alex Gauna sees potential catalysts for NVIDIA shares ahead in the form of a possibly favorable patent litigation outcome as well as further opportunities for licensing deals and penetration of new markets.