Valuation; See Potential Upside Restrained at $14 Level
We believe potential upside may be restrained to the $14 level given the pressure in their core graphics business and given secular trends in these markets and the current lack of visibility in growth from NVDA’s new product introductions (notably, Tegra and HPC traction). With solid growth in GPU and Workstation revenues, near-term we remain cautious given heightened competitive pressures from both Intel and
AMD (with DX-11 lead) coupled with supply constraints with foundry partner TSMC. While NVDA’s longer-term outlook remains uncertain we edge higher our CY10 EPS estimate to $0.75 (previous $.66) vs. consensus $0.64 on sales of $3.86B +18.3% YoY while we monitor the
competitive landscape and we maintain our price target at $14 or around 1.7x EV/CY 10 Sales (5 year Avg 2.5x EV/Sales). NVDA currently trades at 1.5x EV/CY10 Sales. Our longer term rating remains 2-EW at present given ongoing competitive pressures in NVDA’s
core business and limited visibility on Tegra and HPC revenue ramp.