Daiwa downgrades Nvidia, says valuation is still too high given the weak economy

Daiwa Capital Markets believes shares of Nvidia need a valuation reset as the chipmaker faces a slew of challenges ahead. Analyst Louis Miscioscia downgraded shares of the company to neutral from outperform, saying in a note to clients Thursday that uncertainty is ahead for the company as it grapples with new government restrictions and a weakening economy that could continue putting a damper on its data center and gaming businesses. “In moving to a 3/Neutral rating, there are now just too many uncertainties, especially given high valuation, of how much will the USG restrictions impact business, what is the normalized Gaming growth rate, and will the weak economy hurt DC sales,” he said. “We suggest investors move to the side while valuation resets, and long term growth visibility emerges.” Along with the downgrade, Miscioscia trimmed the firm’s price target on the stock to $133 from $215 a share, which represents more than 4% downside from Thursday’s close. Miscioscia believes Nvidia’s P/E is too high and needs to accommodate a likely slowdown in top and bottom line growth over the next year as the company faces uncertainties. This includes excess inventory amid a backdrop of weakening consumer and crypto demand. Earlier this week, Nvidia also said it could face a $400 million hit to its revenue in China after the U.S. government ordered the company to stop selling certain chips to the country. The news has contributed to the more than 14% drop in the chipmaker’s share price since the beginning of the week. Shares of Nvidia have already come under pressure this year, falling nearly 53% as the semiconductor sector grapples with continued supply issues and a potential slowdown in spending as fears of a recession mount. — CNBC’s Michael Bloom contributed reporting

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