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Pro Analysis

Sell high-flying chipmaker Nvidia because demand going ‘from bad to worse,’ analyst says

Jen-Hsun Huang, CEO of Nvidia, holds a Nvidia Drive PX Auto-Pilot Computer during the GPU Technology Conference in San Jose, California, last March.
David Paul Morris | Bloomberg | Getty Images
Jen-Hsun Huang, CEO of Nvidia, holds a Nvidia Drive PX Auto-Pilot Computer during the GPU Technology Conference in San Jose, California, last March.

Pacific Crest lowered its rating on Nvidia to underweight from sector weight, saying a survey of the chipmaker's customers indicate earnings will come in below expectations this coming year.

"We are downgrading NVDA … due to signs of desktop GPU [graphics processing unit] market saturation, lower margins from incremental Nintendo Switch revenue and a possible pause in the company's datacenter business this summer," analyst Michael McConnell wrote in a note to clients Tuesday. "Desktop graphics card manufacturers are noting material demand deceleration in sell-through since February."

Shares of Nvidia, which makes chips for the desktop graphics cards, are up 203 percent in the past 12 months through Monday on a successful launch of its new Pascal line of graphics chips. However, the stock is down 7 percent since the company's fourth-quarter earnings report Feb. 9.