Shares of Nvidia Corp. shares were slipping Monday after an analyst took a more cautious outlook on the company’s gaming business.
Baird’s Tristan Gerra downgraded Nvidia’s stock NVDA, -4.87% to neutral from outperform, writing of his concerns about excess inventory for consumer graphics processing units (GPUs). The shares were off 5.1% in afternoon trading.
“We believe order cancellations recently started in consumer GPUs, driven by excess inventories, a slowdown in consumer demand (reflected by an ongoing reduction in graphic cards pricing), slowdown in PC demand, and the Russia embargo,” he wrote in a note to clients.
Gerra thinks that the consensus view might be underestimating the percentage of Nvidia’s consumer GPU business that’s linked to Russia. Additionally, he believes that demand has dampened in China, which he said represents an estimated 25% to 30% of the market for consumer GPUs.
Further, he worries about the upcoming Ethereum fork, which is expected to drive reselling of GPUs no longer needed for Ethereum mining. That dynamic could put additional pressure on prices, Gerra wrote.
Read: Ethereum’s major upgrade is coming. Should you be more bullish on it than bitcoin?
He now projects that Nvidia’s gaming revenue could be flat to slightly up on a sequential basis in the fiscal second quarter, as well as down by a mid-single-digit rate in the fiscal third quarter.
Gerra said that the forecast for Nvidia’s data-center revenue is still “very strong,” though he has questions about “whether new expected delays in the ramp of Sapphire Rapids could impact mainstream server refreshes in C2H and affect shipments later this year.”
He lowered his price target on Nvidia’s stock to $ 225 from $ 360. The shares have lost 21.2% over the past three months, as the S&P 500 SPX, -1.30% has dropped 6.0%.