Nvidia Corp. shares finished higher along with the rest of the chip sector Tuesday after a noted short seller sought to throw cold water on Wall Street’s praise for the graphics-chipset maker’s new gaming card, predicting the stock will fall 20% by April 2019.
Nvidia NVDA, +2.21% shares closed up 2.2% at $253.32, after touching an intraday high of $253.50, while the PHLX Semiconductor SOX, +1.98% finished up 2% and the S&P 500 index SPX, +0.21% closed up 0.2%.
On Tuesday, Citron Research put out a note listing 10 reasons why Nvidia should be a $200 stock by April. That follows Nvidia’s unveiling of its new line of gaming cards, in what represents its core business, with shares finishing up 1.2% on Monday. That’s on the heels of a 4.9% decline on Friday following earnings that showed a drop in cryptocurrency mining sales.
While the S&P 500 index touched an all-time high on Tuesday, Nvidia shares last touched an all-time high of $269.20 on June 14.
Some of Citron’s reasons included that Nvidia is a high multiple stock that is no longer beating Wall Street expectations by a wide margin, that current customers are developing their own AI chips, that tensor processing units are beginning to edge out Nvidia’s graphics processing units in cloud computing, and that short interest on the stock is at an all-time low.
Read: Opinion: New Nvidia chips shift the future of gaming graphics
About 1.9% of Nvidia’s outstanding shares are shorted, according to FactSet data.
Goldman Sachs, however, sees that short position a little differently, placing Nvidia on its list of 50 stocks with the largest short positions at hedge funds. Nvidia placed sixth at $2.8 billion in total short-interest positions at hedge funds. Goldman also noted that 11 funds had Nvidia as a top 10 holding.
That follows a note from Evercore ISI analyst C.J. Muse praising Nvidia’s unveiling of its GeForce RTX 20-series of gaming cards that run from $499 to $1,199 and use the company’s new Turing chip architecture, which upgrades from its Pascal architecture.
“With little inventory in the high end, look for a very successful launch here,” Muse said. “As for lower end, our sense is the Pascal cycle will continue through calendar year-end with likely launch sometime in 1Q19.”
Muse has an outperform rating and a $275 price target on Nvidia and calls the stock “the best growth story in all of semiconductors (and obviously one of the best large cap stories in all end markets).”
Read: Analysts are more bullish on Nvidia stock despite investor disappointment
Wells Fargo analyst Aaron Rakers, who has an outperform rating and a $315 price target, said that there could be up to 200 million gamers who use the GeForce Experience app, up from the more than 100 million Nvidia announced in March, “considering the proliferation of gamers in China that play in iCafes.”
Rakers estimates that more than 60% of those subscribers may still be playing on cards that are two or more years old, pre-Pascal architecture, and that could mean an upgrade cycle of 15% to 20% of the installed base per year “or faster considering Turing is a much more meaningful architectural upgrade.” The analyst also noted that following the Pascal upgrade two years ago, gaming card sales grew 50% or more year-over-year for four straight quarters.
Citron notes that this is a glaring problem with Nvidia, that the bull case on the stock “is now predicated on an upgrade cycle.” Also, the most touted feature of Turing, real-time ray tracing, or how the card renders light and shadows, may come at a cost of overall card performance as the company did not release traditional benchmarks for the card while talking up ray tracing, Citron said.
Nvidia shares are up 59% over the past 12 months, compared with a 27% gain in the PHLX Semiconductor Index and an 18% gain in the S&P 500.
Of the 37 analysts who cover Nvidia, 23 have buy or overweight ratings, 13 have hold ratings, and one has a sell rating, with an average price target of $281.69, according to FactSet data.
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