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Feb. 25, 2020, 9:51 a.m. EST

Nvidia’s coronavirus risk prompts downgrade at Instinet

Analyst also worries about competition from Intel and AMD for Nvidia

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By Emily Bary

Bloomberg News
Jen-Hsun Huang, president and chief executive officer of Nvidia Corp.

Instinet analyst David Wong joined the lonely bear camp on Nvidia’s stock Tuesday, citing risks posed to the chipmaker by the novel coronavirus outbreak.

Wong downgraded Nvidia’s stock /zigman2/quotes/200467500/composite NVDA +0.33%  to reduce from neutral in a note to clients, writing that “many investors and companies may have underestimated the risk of the current issues impacting electronics end market demand through 2020.” He lowered his price target on the shares to $230 from $235.

Gaming accounted for more than half Nvidia’s revenue in 2019, Wong said, but he argues that purchases like gaming graphics processing units (GPUs) or Nintendo Switch-based chips are discretionary and potentially vulnerable amid the current economic uncertainty.

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“We think the economic dislocations resulting from the COVID-19 outbreak pose risk to demand in most electronic end markets, though we believe the end markets associated with consumer purchases might have the most potential downside,” he wrote, referring to the COVID-19 disease brought on by the new coronavirus that originated in Wuhan, China late last year.

Wong is concerned about automotive demand suffering, too, as the coronavirus outbreak continues to spread, but he also cites increasing competitive pressure for Nvidia in this area.

“In addition, we think that many investors continue to view Nvidia as the leader in autonomous driving chips, but over the last several quarters, Intel’s /zigman2/quotes/203649727/composite INTC -2.07%  Mobileye sales have pulled meaningfully above Nvidia’s automotive sales,” Wong wrote. “We believe Intel is consolidating its position as the leading provider of processors for autonomous driving.”

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Meanwhile, in GPUs, Wong is impressed by Nvidia-rival Advanced Micro Devices Inc.’s /zigman2/quotes/208144392/composite AMD -0.88%  new product offerings, which he said strengthen that company’s competitive positioning relative to Nvidia.

Nvidia shares are up 1% in Tuesday morning trading after dropping 7% in Monday’s session amid a broad-market panic over the coronavirus. Wong’s downgrade makes him just the second analyst to have a bearish rating on Nvidia’s stock out of the 36 analysts tracked by FactSet. Analysts remain overwhelmingly bullish on the name, with 28 rating the stock the equivalent of buy. The average price target listed is $316.14, 16% above recent levels.

Shares have added 24% over the past three months, as the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.08%  has risen some 3%.

US : U.S.: Nasdaq
$ 394.87
+1.30 +0.33%
Volume: 8.94M
July 7, 2020 4:00p
P/E Ratio
Dividend Yield
Market Cap
$242.05 billion
Rev. per Employee
US : U.S.: Nasdaq
$ 58.31
-1.23 -2.07%
Volume: 16.00M
July 7, 2020 4:00p
P/E Ratio
Dividend Yield
Market Cap
$252.09 billion
Rev. per Employee
US : U.S.: Nasdaq
$ 52.93
-0.47 -0.88%
Volume: 32.15M
July 7, 2020 4:00p
P/E Ratio
Dividend Yield
Market Cap
$62.54 billion
Rev. per Employee
-34.40 -1.08%
Volume: 2.29B
July 7, 2020 5:18p

Emily Bary is a MarketWatch reporter based in New York.

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