Add Nvidia to 'Christmas shopping list' as chip stocks carve out a bottom, Citi says

  • Citi adds Nvidia to its "Semis Christmas Shopping list," saying chip stocks appear to be carving out a price floor after a steep sell-off.
  • "Citi semiconductor team believes a bottom is forming in semiconductor stocks which could be a good entry point into high quality companies," analyst Atif Malik wrote.
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Lucas Jackson | Reuters

It's time to add Nvidia to the Christmas shopping list as semiconductor stocks start to carve out a price floor after a steep sell-off, Citigroup told clients Thursday.

Not only have Nvidia estimates been cut 18 percent on lower cryptocurrency demands, but gaming chip sale expectations have been reduced to make the stock look cheap, analyst Atif Malik wrote.

"Citi semiconductor team believes a bottom is forming in semiconductor stocks which could be a good entry point into high quality companies where Street estimates have already been cut sharply," Malik wrote. We're "adding Nvidia to Citi Semis Christmas Shopping list on bottom picking."

Nvidia, which makes graphics chips used in gaming consoles and data centers, saw its shares sink 18 percent in extended trading on Nov. 15 after the chipmaker forecast falling revenue for the current quarter. The stock is in the middle of what's become an abrupt about-face from last year, when it soared more than 80 percent.

Analysts have pointed to last year's bitcoin boom and subsequent plunge for the whipsaw in Nvidia's share price. But despite the recent turbulence, Malik and others have highlighted healthy revenue growth in its data center business and have started to wonder if the worst of the chipmaker's sell-off could be over.

The VanEck Vectors Semiconductor ETF, an fund that tracks the performance of a variety of chipmaker stocks, is down more than 15 percent over the past six months, but only down 0.1 percent in the last one-month period. Nvidia shares traded flat Thursday and ended the day at $148.89.

"We believe a combination of slower (but still robust) revenue growth, increasing capex rationalization, and higher use of storage and compute optimized server less ervices like AWS Lambda at three global hoyer-scale cloud players could slow down demand in the next couple of quarters," the Citi analyst wrote.

"However, this is already reflected in our current 5 percent/4 percent below-consensus January/April-quarter data center estimates," Malik added. "We maintain our underlying buy-rated thesis of Nvidia as a key beneficiary of secular growth trends such as eSports, deep learning, artificial intelligence, and autonomous driving."