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Has Nvidia Reached Peak Market Share?

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Has Nvidia Reached Peak Market Share?
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NVIDIA Corporation (NASDAQ: NVDA), one of 2016's top performing stocks, is currently sitting near its all-time high $120.92.

Needless to say this has many investors wondering if there is further room for the stock to grow. Michael McConnell of Pacific Crest doesn't think this is the case as the analyst maintains a Sector Weight rating on Nvidia's stock with no assigned price target.

Quarter In Review

McConnell noted that Nvidia's fourth-quarter report included a better than expected revenue growth, which was driven by "strong" Tesla Inc GPU sales, while data center sales showed "another impressive quarter" as revenue soared 205 percent from a year ago to $296 million.

The analyst also highlighted that Nvidia's days of inventory (DOI) now stands at the highest level since the fourth quarter of 2009, and this should be monitored by investors as the upcoming two quarters are typically the seasonally weakest for gaming.

Looking forward, Nvidia's first-quarter guidance was mixed as the company's revenue expectation of $1.90 billion is roughly in-line with McConnell $1.93 billion estimate. On the other hand, the company guided its earnings per share to be $0.63, lower than the analyst's estimate of $0.68.

Also, McConnell pointed out that Nvidia's operating expenses were guided to grow more than 20 percent in fiscal 2018, which is ahead of his estimate of just 15 percent.

Fair Value Is $99

Finally, McConnell thinks that $99 is a fair value for Nvidia's stock based on a 30x multiple on his newly introduced fiscal 2019 earnings per share estimates of $3.30.

Bottom line, the analyst is recommending investors sit on the sidelines given peak GPU unit share, a declining operating margin in fiscal 2018 and an already premium valuation.

Image Credit: By The Conmunity - Pop Culture Geek from Los Angeles, CA, USA - CES 2012 - NVIDIA, CC BY 2.0, via Wikimedia Commons

Latest Ratings for NVDA

DateFirmActionFromTo
Nov 2017Canaccord GenuityMaintainsBuy
Nov 2017BMO CapitalUpgradesUnderperformMarket Perform
Nov 2017BarclaysMaintainsEqual-Weight

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