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Why Did Nvidia Stock Fall on December 28?

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NVDA fell 6.9% on analyst comments

Nvidia (NVDA) stock fell 6.9% on December 28, 2016, after Citron Research released a report lowering the stock’s target price to $90. According to Citron Research, Nvidia’s growth in revenue and its market share gain came at AMD’s (AMD) expense and not by targeting new markets.

Competition from emerging and established players in the data center space such as Xilinx (XLNX), Intel’s Xeon Phi (INTC), and AMD’s Radeon Pro could impact Nvidia’s revenues.

Uncertainty looms for Nvidia’s Intellectual Property (or IP) segment, as the royalty payments it receives from Intel (INTC) under a five-year licensing agreement should end in March 2017.

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The IP and OEM[1. original equipment manufacturer] segment accounted for 16% of Nvidia’s overall revenues in fiscal 2016. If the company fails to renew its licensing deal with Intel or isn’t able to secure another such contract, the Licensing segment may cease to exist. Citron Research’s report raises concerns over Nvidia’s ability to maintain its gross margins if Intel enters the IP segment.

Citron Research argues that as Nvidia is a fabless producer and Intel is vertically integrated, the latter can “charge 37% less for its chips and still generate 80% gross margins.”

Stock rises 230% in the trailing 12 months

Nvidia (NVDA) stock has risen 230% in the trailing 12-month period to $109.25. In November 2016, its stock rose 30% on 3Q16 results that easily beat analysts’ expectations.

In 3Q16, Nvidia’s revenues rose 54% YoY (year-over-year) to $2 billion, whereas its non-GAAP[2. generally accepted accounting principles] EPS (earnings per share) rose 104% YoY to $0.94. Analysts expected revenues of $1.7 billion and EPS of $0.69.

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