NVIDIA NVDA has once again come under the scanner as investors have reportedly filed a class-action lawsuit against the company over misleading them regarding the collapse of its cryptocurrency business.
The case filed by Schall Law Firm and Glancy Prongay & Murray LLP alleges that the company’s unpreparedness related to the changing market environment has been a major setback.
Moreover, the accuser cited that the company was “untruthful” regarding the status of its cryptocurrency business. Further it stated that investors were misguided into believing that the company would absorb diminishing crypto-related demand.
A final decision regarding the class-action issue is to be made by a judge on Feb 19.
Notably, 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 35.9% in the past year, underperforming the industry’s 12.9% decline and the S&P 500 Composite’s 7.2% fall.
The stock’s market cap as of Jan 3 is $83.1 billion, down from more than $175 billion recorded in September-end.
Price Performance
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What Went Wrong?
The chipmaker endured a bumpy ride in 2018 due to the end of the cryptocurrency mining boom, which weakened demand for its GPUs.
NVIDIA was overly optimistic that demandfor 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. The lower-than-expected top and bottom-line third-quarter fiscal 2019 results left the company tremendously stressed.
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 this year.
We note that 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 perk up rapidly to mitigate the tepid 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.
Southbound Estimates
Analysts have been increasingly growing bearish on the stock over the past couple of months with all estimates being revised downward while no movement has been noticed in the opposite direction for the ongoing quarter as well as the full fiscal.
The company’s fourth-quarter fiscal 2019 earnings estimates moved south from $2 to $1.41 in the past 60 days. Further, the company’s fiscal 2019 earnings estimates have been lowered from $7.90 to $7.24.
NVIDIA Corporation Price and Consensus
NVIDIA Corporation Price and Consensus | NVIDIA Corporation Quote
Stocks to Consider
Some better-ranked stocks in the broader Computer and Technology sector are Synopsys, Inc.SNPS, eGain EGAN and Symantec Corporation SYMC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Synopsys, eGain and Symantec is projected to be 10%, 30% and 7.9%, respectively.
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