Nvidia Is a ‘Core Holding,’ Analyst Says. But It Faces Short-Term Gaming Headwinds.

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Don’t sell your shares of Nvidia just yet, Morgan Stanley has recommended. The stock remains a “core holding,” even though concerns over a deceleration in the gaming sector remain a short-term risk, analyst Joseph Moore wrote on Tuesday.

Moore resumed coverage of Nvidia (ticker: NVDA ), rating the stock at Equal Weight and setting a $217 price target.

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“The stock is a core holding; our approach is to at least maintain a market weighting in the stock, and look for spots for an overweight,” he wrote on Tuesday.

Nvidia stock was down 0.06% to $195.22 on Tuesday.

While Moore is bullish on the company’s long-term prospects and market positioning, he is modeling a significant deceleration in gaming that could result in a challenging 2023. The analyst projects a 20% sequential decline in gaming in the April 2023 quarter, but believes growth could tick back up with the launch of new ray tracing products.

That deceleration could be offset by strong growth in other parts of Nvidia’s business, including the data center segment, pro visualization segment, and auto segment, Moore wrote.

Nvidia’s data center, especially, is seeing solid year-over-year growth as the company expands its offerings and clients migrate over to cloud-based storage solutions, Moore added. The segment has been a bit constrained due to a chip shortage, but that could improve as bottlenecks ease, he wrote.

Shares of Nvidia have been battered over the last weeks, losing almost 34% year to date amid concerns over slowing consumer demand for personal computers and gaming cards. The semiconductor industry has also been impacted by rising interest rates that have cooled investors off of growth stocks.

But even so, Nvidia has the highest trading multiple among its peers, Moore said, which was “a bit too rich for the setup” he sees in the stock, driving his Equal Weight rating.

“The bearish setup in consumer end-markets keeps us on the sidelinesuntil near-term business prospects improve. That being said, further correction to share price would allow us to become more constructive,” he wrote.

Moore is one of seven analysts covering the stock on FactSet who rated Nvidia the equivalent of a Hold. Of the 45 analysts covering the stock, 37, or 82%, rated it a Buy or Overweight, while one, or 2%, rated it a Sell.

In mid-April, Baird analyst Tristan Gerra lowered his rating to Neutral from Outperform and cut his price target to $225 from $360, saying that while he believed in the company’s long-term fundamentals recent order cancellations in the consumer GPU segment could signal trouble ahead .

Write to Sabrina Escobar at [email protected]

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