Will NVIDIA Recover From Its Slide? (NVDA)

The share price of graphics chip maker NVIDIA (NASDAQ: NVDA) opened yesterday near its 52-week low following pessimistic guidance issued last week for the fiscal 2013 fourth quarter and the subsequent cut in estimates by analysts. However, the share price recovered quickly on the backdrop of optimism created by the news that the company’s chip is part of the Titan supercomputer that registered 17.59 petaflops on Monday to take the numero uno position in the field of supercomputing. However, the selling pressure in the later half of the trading session made sure that the losing streak would continue.

The California-based NVIDIA manufactures graphics chips for use in smart phones, personal computers, tablets and professional workstations. The share price of NVIDIA is currently on a downward trend. The slide started in the last week of August after the research firm IHS iSuppli revised its global semiconductor market chip revenue forecast to contract by 0.1%. The previous forecast of IHS iSuppli predicted a growth of less than 3%. On October 4, the Semiconductor Industry Association (SIA) reported August global chip sales of $24.30 billion, a 3.2% decline compared to the similar period a year ago. The news triggered another sell off resulting in a share price of $12.63 on October 12. A “Motley Fool” report published on October 16 pointed out the drawbacks faced by NVIDIA from the pricing of Microsoft’s Surface tablet. A week later, the shares of NVIDIA touched a low of $11.97.

On October 8, NVIDIA reported fiscal 2013 third-quarter revenues of $1.20 billion and GAAP net income of $209.1 million, or $0.33 per diluted share. Non-GAAP net income for the fiscal 2013 third quarter was $245.5 million, or $0.39 per diluted share.

Apart from initiating a quarterly dividend of 7.5 cents a share, NVIDIA also issued fiscal 2013 fourth-quarter guidance. The company expects fourth-quarter revenue in the range of $1.025 billion to $1.175 billion. Following the guidance, UBS raised its revenue estimate between $1.105 billion and the prior $1.1 billion estimate while cutting EPS by a penny to $0.24. Also, Canaccord Genuity cut the fourth-quarter revenue estimate from $1.25 billion to $1.1 billion, and EPS to $0.24 from $0.32.

On November 12, Titan, the supercomputer from the Oak Ridge Laboratory in Tennessee, set a supercomputing record with 17.59 petaflops compared to 16.32 petaflops by Lawrence Livermore National Laboratory’s Sequoia supercomputer powered by chips from IBM (NYSE: IBM). The Titan supercomputer was built with NVIDIA’s graphic processors and AMD’s (NYSE: AMD) chips.

Yesterday, the shares of NVIDIA opened at $11.82, down $0.10 from the previous close of $11.92. However, the optimism created by the Titan supercomputer story provided the necessary psychological support that enabled the share price to recover quickly into positive territory. However, the realty of challenges faced by the company to position itself in the mobile processor business against the likes of Qualcomm (NASDAQ: QCOM), Texas Instruments (NASDAQ: TXN) and Broadcom (NASDAQ: BRCM) pushed the stock back into negative territory in the last two hours of the trading session.

NVIDIA ended yesterday’s trading session at $11.83 per share, down $0.09 or 0.7% on a volume of 12.3 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.