NVIDIA NVDA suffered a bumpy ride in 2018, thanks to a string of weaknesses plaguing the semiconductor market since the second half.
Notably, the company, which impressed investors with a stellar performance in the past couple of years, has been witnessing a downward trend since October. Moreover, the chip-maker has remained tremendously stressed ever since it reported lower-than-expected top and bottom-line results on Nov 15.
Additionally, the company’s bleak near-term guidance dealt a severe blow to investor confidence. This is further evident from a recent Bloomberg report, which stated that SoftBank Group Corp is planning to sell its stake in the company early next year.
We note that this Zacks Rank #4 (Sell) stock is currently one of the worst performers, lagging the S&P 500 index and the industry it belongs to over the past year.
Shares of NVIDIA have plunged 31.3% in the past year compared with the industry’s’ 16.8% decline and the S&P 500 Composite’s 12% fall.
Year-to-Date Price Performance
The market cap of the stock as of Dec 26 is $81 billion, down from more than $175 billion recorded in September-end.
What’s Bothering the Company?
NVIDIA is having a real tough time due to the end of the cryptocurrency mining boom, which weakened demand for its GPUs.
The company was overly optimistic that demand for its GPUs will shift from miners to gamers, which will boost the gaming business revenues and offset the revenue loss from miners. As a result, the company continued with its production of GeForce graphics cards. However, drawing proof from its last result, this has not been the case.
Slowdown in demand for older and newer gaming chips hit the company badly. Inventory level of midrange Pascal gaming cards remained higher-than-expected as demand from gamers failed to grow rapidly to counter the sluggish cryptocurrency-related requirement.
On the last earnings call, management mentioned that it will take two quarters to normalize the channel inventory. The company’s outlook for the fiscal fourth quarter indicates its suspension of mid-range Pascal GPU shipments in order to stabilize the channel-inventory levels.
Moreover, due to the normal seasonal build cycle, the company anticipates lower sales of Tegra chips for game consoles to be an overhang on its gaming revenues.
Additionally, although the company is witnessing growth in its datacenter business, the growth rate seems to have waned from the previous levels.
This apart, a robust competition from Advanced Micro Devices AMD, which is ramping up its CPU & GPU portfolio to strengthen position in the gaming and datacenter business, poses a serious threat to NVIDIA.
Moreover, growth in in-house chip production of NVIDIA’s datacenter partners like Amazon AMZN, Alphabet’s Google GOOGL, Facebook and Alibaba will further intensify rivalry in the market.
Given such circumstances that NVIDIA is currently in, it is advisable for investors to steer clear of the stock.
Although NVIDIA's prospects may not seem appealing at the moment, there are some semiconductor stocks that hold great promise.
Zacks’ proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with an impressive Growth Style Score of A or B when combined with a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment bets. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are four stocks with this perfect combination:
Headquartered in Plano, TX, Diodes Incorporated DIOD is a manufacturer and supplier of application-specific standard products, primarily to the communications, computing, industrial, consumer electronics and automotive markets. The stock sports a Zacks Rank of 1 and has a Growth Score of B. The Zacks Consensus Estimate for fiscal 2019 earnings of $2.50 has remained unaltered in the past 30 days.
Diodes Incorporated Price and Consensus
Diodes Incorporated Price and Consensus | Diodes Incorporated Quote
Aurora, IL-based Cabot Microelectronics Corporation CCMP is the leading supplier of CMP slurries for polishing various materials used in semiconductor manufacturing processes. The stock has a Zacks Rank of 1 and a Growth Score of B. The Zacks Consensus Estimate for 2019 bottom line of $8.13 has remained unchanged in the past 30 days.
Cabot Microelectronics Corporation Price and Consensus
Cabot Microelectronics Corporation Price and Consensus | Cabot Microelectronics Corporation Quote
Based in Vancouver, WA, nLIGHT Inc. LASR is a provider of high-power semiconductor and fiber laser. The stock has a Zacks Rank of 2 and a Growth Score of B. Further, the Zacks Consensus Estimate for current-year earnings has been constant at 58 cents in the past 30 days.
nLight Inc. Price and Consensus
nLight Inc. Price and Consensus | nLight Inc. Quote
Taiwan-based Advanced Semiconductor Engineering, Inc. ASX is an independent provider of semiconductor packaging services and semiconductor testing services. The stock has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for fiscal 2019 earnings has been reiterated at 43 cents in the past 30 days.
Advanced Semiconductor Engineering, Inc. Price and Consensus
Advanced Semiconductor Engineering, Inc. Price and Consensus | Advanced Semiconductor Engineering, Inc. Quote
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Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Advanced Semiconductor Engineering, Inc. (ASX) : Free Stock Analysis Report
Cabot Microelectronics Corporation (CCMP) : Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
Diodes Incorporated (DIOD) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
nLight Inc. (LASR) : Free Stock Analysis Report
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