Nvidia Corporation NVDA shares command a premium valuation, and sell-side's theses have all along justified its valuation due to the chipmaker's strong growth profile and optionality.
An analyst at KeyBanc Capital Markets, however, deemed it fit to downwardly revise the price target and here's why:
The Semiconductor Analyst: Analyst John Vinh maintained an Overweight rating on Nvidia shares and reduced the price target from $350 to $310.
Vinh also took down his price target for Qualcomm, Inc. QCOM from $230 to $200, while maintaining the rating at Overweight.
The analyst kept his Overweight rating and $165 price target on Advanced Micro Devices, Inc. AMD shares. Intel Corporation's INTC rating was maintained at Sector Weight.
The Semiconductor Thesis:
Supply Chain Readouts Mixed: March quarter's supply chain checks are mixed, with softness in consumer, PC, and smartphone end markets, and further supply/demand disruptions related to the COVID lockdowns in China, analyst Vinh said. On the other hand, broader demand trends remain healthy, underpinned by strong demand for auto, cloud data center and 5G infrastructure, the analyst noted.
Geopolitics to Weigh On Nvidia: Broader weakness in Europe due to hyperinflation concerns from the Russia/Ukraine war have resulted in softer consumer demand for graphic processing units, analyst Vinh said. This has led to order cuts and pushouts of GPUs, he added.
The COVID-19 lockdowns in China have disrupted supply, and this is creating additional headwinds, the analyst said. Accordingly, the analyst lowered his estimates for Nvidia and in turn the price target for its shares.
"Our LT bullish view around ML/AI-centric growth and monetization of software, including the Metaverse, remains intact," the analyst said.
Related Link: 8 Stock Picks To Play The 2022 Emerging Trends Shaping The Semiconductor Industry
China Comes to Haunt Qualcomm: Slowing down of China smartphone demand as a fallout of the COVID-19 resurgence represents a risk to Qualcomm's forward estimates, Vinh said. The analyst, however, sees upside to his 2023 estimates due to challenges with Apple, Inc.'s AAPL internal 5G modem, he added.
Mixed Views On AMD, Intel Robust cloud demand trends are positive for both Intel and AMD, Vinh said. The pull-in of AMD's next-gen server CPU Genoa ramp schedule that will allow it to ramp slightly ahead of the competing Sapphire Rapids offering from Intel is seen as positive for Team Red but negative for Team Blue, he added.
Intel's share gains in the desktop market with its Alder Lake processors is a positive for the company but negative for AMD, the analyst noted. Both companies are likely to be impacted by soft PC demand, he added.
Semiconductor Price Action: The iShares Semiconductor ETF SOXX closed Monday's session 2.05% lower at $419.99.
Related Link: How Will The Intel Vs. AMD Rivalry Pan Out In 2022?
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