Nvidia (NASDAQ:NVDA), the worldwide leader in graphics and digital media processors, announced third-quarter earnings late last week. Excluding one-time items, they actually were pretty good. As a result, NVDA stock jumped 3.5% in heavy trading.
While the news has traders excited, I wouldn’t get carried away here. Nvidia’s stock is bouncing off 52-week lows for a reason. NVDA shareholders might want to consider getting out on the bounce and reinvesting the proceeds in Advanced Micro Devices (NYSE:AMD). Here’s why:
A Look Ahead
Nvidia’s third-quarter 2012 adjusted earnings per share were 31 cents — five cents higher than the Zacks consensus estimate. On the top line, its revenue grew 26.4% year-over-year to $1.07 billion. More relevant was the 4.9% increase from the second quarter. No doubt these results are better than expected.
But when it came to providing an outlook for the fourth quarter, all Nvidia could come up with was revenues flat with the third quarter. The company was upbeat in its conference call, noting that its Tegra mobile processor for phones and tablets saw revenues increase 14% to $191 million. However, the fact that Nvidia CEO Jen-Hsun Huang was “surprised” by Amazon‘s (NASDAQ:AMZN) Kindle Fire makes you wonder if the company is just putting on a brave face. You’d think the company would have known that one of its biggest competitors — Texas Instruments (NYSE:TXN) — had the inside track.
It’s not very good — and that’s taking into account Nvidia’s earnings report. Prior to the earnings announcement, only 12 analysts out of 35 rated NVDA stock a “buy.” Furthermore, the consensus price target for 12 months is $16 per share. That’s not very much higher than where it sits as of this writing. Nvidia has done an admirable job recovering from its 52-week low of $11.47, which it hit Oct. 4. However, every time NVDA has gotten near the $16 level since July, it has headed back down almost immediately, and now its 200-day moving average is turning below the $16-$17 level. I’m not a technical analyst, but if it breaks that, look out below.
Now back to the analysts. MKM Partners is worried about Nvidia losing Motorola as a customer, in addition to losing out on the Kindle Fire, and rates NVDA “neutral.” Think Equity believes Nvidia’s growth expectations are already priced into the stock, and as a result it is maintaining its $10 price target and “hold” rating. UBS, on the other hand, is lowering its estimates for Nvidia through 2013 while maintaining its “hold” rating and $15.50 price target. I’m also not an expert in the chip business, but these analyst reports don’t sound good at all. NVDA shareholders might want to take profits until further notice.