The Ratings Game: Nvidia stock falls as analysts ‘nitpick’ data-center results in record earnings report

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Nvidia Corp. shares declined Thursday after the chip maker’s strong results and outlook met with some pushback from analysts on the company’s data-center business.

Late Wednesday, Nvidia NVDA, -7.51% reported quarterly sales that surpassed the $5 billion mark for the first time on record gaming card sales and data-center sales that —while they were up 97% from a year ago — were flat sequentially, matching last quarter’s record highs. At least 17 analysts raised their price targets in response to the results, according to FactSet, but also found flaws in the report, especially in the results and forecast for the data-center segment.

“Nitpick if you’d like,” said Cowen analyst Matthew Ramsay in a note, referring to Nvidia’s data-center outlook versus high expectations.

“In our view, dissecting the datacenter upside is warranted, as it remains Nvidia’s largest long-term growth vertical, but also distracts from very strong F1Q22 gaming guidance which implies a fourth straight quarter of 65%+ Y/Y growth” Ramsay said. He expects Nvidia’s auto-chip sales to be the next catalyst for the company amid shortages in the auto industry. Ramsay has an outperform rating and a $665 price target.

Read: Worldwide chip shortage expected to last into next year, and that’s good news for semiconductor stocks

Susquehanna Financial analyst Christopher Rolland, who has a positive rating and a $700, price target said Nvidia’s results and guidance had to be flawless but were “close.”

“All eyes (as always) were on Data Center, and the guide may not be impressive enough for all,” Rolland said. “That said, we consider the DC guidance to be ‘in the ballpark’ and remind investors that the segment can be extremely lumpy.”

Evercore ISI analyst C.J. Muse, who has an outperform rating and a $675 price target, said Nvidia remains his top growth idea in chips, but still pointed to data center as a disappointment.

“While results and guide came in in-line if not better than buy-side expectations, the outlook for the all-important Data Center business disappointed on the margin,” Muse said.

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Jefferies analyst Mark Lipacis, who has a buy rating and a $680 price target, said an investor pullback because of flat data-center sales presents a buying opportunity as it did back in late 2018.

“We observe that datacenter spending on processors has recently been exhibiting periods of above-trendline growth followed by periods of digestion, and that the datacenter is in a digestion period now,” Lipacis said.

Nvidia shares declined more than 5% in the morning session to $547.27, while the PHLX Semiconductor Index SOX, -5.07% shed more than 3%. The S&P 500 index SPX, -2.38% and the Nasdaq Composite Index COMP, -3.29% declined more than 1%. Nvidia shares closed at a record high of $613.21 on Feb. 16, and have more than doubled over the past 12 months.

Of the 39 analysts who cover Nvidia, 30 have buy ratings on the stock, seven have hold ratings, and two have sell ratings, according to FactSet. The average price target on the stock rose to $628.22 from a previous $613.21 Thursday, according to FactSet data.