Shares of Nvidia Corp. (NASDAQ:NVDA) fell 2.15 percent to $15.44 per share on Tuesday after the stock was downgraded to underweight by analysts at Morgan Stanley. In a note seen by MarketWatch, Joseph Moore told clients, “The stock seems to be pricing in substantial earnings improvement that is still uncertain.”
At about 20 times trailing 12-month price-to-earnings, Nvidia stock is substantially more expensive than Intel Corp. (NASDAQ:INTC), which is about 13.3 times trailing P/E. Shares of Nvidia have climbed around 24 percent this year to date, with most of the growth occurring after April. Intel stock, which also took off in April, is up just 15 percent this year to date, having dipped over the summer and entering recovery in October.
Moore may be worried about a few things. One, Nvidia stock is pretty expensive, and expectations for the January quarter are pretty underwhelming. Revenue is expected to fall 4.9 percent on the year to $1.05 billion, while earnings are expected to fall nearly 36 percent to just 18 cents per share.
Full-year revenue is expected to contract 5.4 percent to $4.05 billion, with earnings falling 24.5 percent to 68 cents per share. This is hardly the growth that most observers would expect from a company commanding such a high P/E, especially when Intel — with a lower P/E — is expected to increase revenue by 1.8 percent and earnings by 8.3 percent per share in the coming quarter.
The other thing that Moore could be worried about is competition from Intel itself. The two chipmakers have signed cross-licensing agreements in the past that have provided a cash windfall for Nvidia, but some observers suggest that Intel could make a run at Nvidia’s graphics processing units for personal computers, displacing the latter’s market share with integrated GPUs on Intel’s CPUs. Intel has also signaled its intent to enter the high-performance computing accelerator market with an accelerators branded “Xeon Phi.” These would compete with Nvidia’s Tesla GPUs.
On that front, though, there is news. On Monday, Nvidia announced the launch of the “world’s fastest accelerator for supercomputing and big data analytics,” a GPU called the Tesla K40. The accelerator is “the world’s highest performance accelerator ever built, delivering extreme performance to a widening range of scientific, engineering, high performance computing (HPC) and enterprise applications,” according to a company press release.
What’s more, Nvidia announced that it is partnering with International Business Machines Corp. (NYSE:IBM) to put the accelerators to use in the near future. IBM, already famous for its Watson supercomputer, is looking to expand the horizons for big data analytics.
“Companies are looking for new and more efficient ways to drive business value from Big Data and analytics,” said Tom Rosamilia, senior vice president of IBM Systems & Technology Group and Integrated Supply Chain, in a statement. “The combination of IBM and NVIDIA processor technologies can provide clients with an advanced and efficient foundation to achieve this goal.”