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Don’t Buy NVIDIA Corporation (NVDA) Stock Just Yet

What’s especially important here is that the GPUs in question are Nvidia’s high-end GPUs, which command higher Average Selling Prices (ASPs) than some of Nvidia’s more mainstream offerings. While the drop in pricing dents Nvidia financially, the potential dip in high-end GPU sales, also allows arch rival Advanced Micro Devices, Inc. (NASDAQ:AMD) to potentially reduce the gap in market shares of the two companies. While the report suggests that AMD’s GPU sales were also “characterized as disappointing QTD”, it indicates that the problem could be concentrated in the high-end desktop GPUs segment, which is the high-end gaming market at large, where Nvidia reigns supreme. In this context, McConnell notes:

Given the weaker-than-expected sell-through of higher ASP GeForce GTX 1080/1070 product and higher sales mix of mainstream GeForce GTX 1060/1050, not one desktop graphics card manufacturer we surveyed is expecting sequential revenue growth in calendar Q4, with forecasted sales declines of 5% to 15% q/q. We note this contrasts with NVIDIA’s guidance for sequential revenue growth in its gaming segment (62% of sales) in FQ4 (Jan.), after record-high sales in FQ3 (up 59% q/q, 65% y/y).

It’s hard to quantify the impact of these developments at the moment. However, given the valuations Nvidia currently trades at, any disappointments could trigger a correction. Nvidia’s earnings for the quarter ending Jan 2017 are due to come out in mid-February. So keep an eye out for that announcement.

Also Read: NVIDIA (NVDA) Stock Is At Near All Time Highs, Should You Buy?

Another factor that’s probably getting overlooked is that Nvidia’s near monopoly in the high end GPUs space could well be at risk with Advanced Micro Devices, Inc. (NASDAQ:AMD)’s upcoming line up of Vega GPUs. Armed with a more fine-tuned 14-nm FinFET technology, these GPUs are expected to increase operating speeds and reduce power consumption simultaneously, to deliver better performance per watt than AMD’s current GPU line-up. More importantly, AMD’s Vega line up could potentially outperform Nvidia chips (1) as The Motley Fool’s Harsh Chauhan points out.

“AMD’s Vega 10 GPU will be equipped with second-generation high-bandwidth memory, or HBM2. The deployment of the HBM2 should ideally help AMD’s high-performance RAM to clock a higher bandwidth and consume less power at the same time as compared to NVIDIA’s cards. In fact, it is estimated that the Vega 10 GPU will offer bandwidth of up to 1,024 gigabytes per second, which is much higher than the 320 gigabytes per second delivered by NVIDIA’s GTX 1080 card. Thus, AMD’s latest-generation GPUs are expected to exceed the bandwidth of NVIDIA’s flagship GPU by a really big margin, allowing the card to deliver a better VRAM performance.”

That’s not the only source which suggests that Advanced Micro Devices, Inc. (NASDAQ:AMD) could dent NVIDIA Corporation (NASDAQ:NVDA) though, and we’ll take a deeper look at this aspect of Nvidia’s business in an upcoming post. For now, investors might want to re-assess the degree of optimism attached to Nvidia. As we said at the beginning of this post, CES 2017 is giving investors a lot to be excited about, like Nvidia’s tie up with Audi (2), which plans to bring self-driving AI cars to the market by 2020. However, investors might do well not to ignore the near-term risks.

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The article Don’t Buy NVIDIA Corporation (NVDA) Stock Just Yet originally appeared on amigobulls.com. Watch our analysis video on NVDA.

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Additional Links:

(1) http://www.fool.com/investing/2016/12/09/1-reason-nvidia-investors-need-to-worry.aspx?source=yahoo-2-news&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2-news&yptr=yahoo&ref=il

(2) https://techcrunch.com/2017/01/04/nvidia-and-audi-aim-to-bring-a-self-driving-ai-car-to-market-by-2020/?ref=il

(3) http://amigobulls.com/stocks-to-buy/top-tech-stocks/?ref=il&ref=im

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