Nvidia Overvalued as Competition Lurks

The firm’s graphics processing units, or GPUs, have been broadly adopted across a multitude of end-markets, though we note gaming remains Nvidia’s largest segment. While data center sales reached a record high for the quarter, we maintain our view that current market prices imply overly optimistic expectations for the overall company. GPU sales face challenging comps after the Pascal release in 2016. Additionally, this quarter marked the last one for Intel’s cross-license payments, without which Nvidia’s margins will be negatively affected. The market continues to appreciate the clockwork-like execution of Nvidia, with shares up sharply during after-hours trading.

We plan to modestly increase our fair value to $44 from $41 per share, due to superior forward guidance. However, we reiterate our view that shares are significantly overvalued, as we do not believe the market is appropriately factoring in competitive forces from the likes of Intel/Mobileye and Qualcomm/NXP Semiconductors in the data center and automotive arenas.

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