Lehman Dowgrades Nvidia, Bear Stearns Remains Bullish

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Includes: AMD, NVDA
by: Eric Savitz

Nvidia (NASDAQ:NVDA) shares were lower Monday morning after Lehman chip analyst Tim Luke cut his rating on the stock to Equal Weight from Overweight. He maintains a $37 price target on the stock.

Luke expects the company’s results for the fiscal third quarter ending October - which are due to be reported November 8 - to show upside to his current estimates of $1 billion in revenue and EPS of 36 cents. And he expects the company to offer fourth quarter guidance in list with his above-consensus estimate of 42 cents a share. But he also says that “momentum may moderate” after that “as a gradually reorganized ATI [a unit of Advanced Micro Devices’ (NASDAQ:AMD)] re-engages the market place, as as Intel (NASDAQ:INTC) begins to seek a broader role in the graphics market.”

Last week, American Technology Research Analyst Doug Freedman made a similar argument in downgrading his rating on the stock.

Also sounding a note of caution on Nvidia, CRT Capital Group’s Ashok Kumar wrote Monday morning that he believes ATI captured about 3 percentage points of market share from Nvidia in the third quarter. “For most of [the] last year, Nvidia has overwhelmed ATI on all fronts: notebook market share, desktop market share and performance leadership,” he writes. “But like a Hollywood movie plot, with ATI playing the down-and-out, at some point the stars favor the underdog. The tide may have turned for ATI in the September quarter.” His advice to investors: “We would not use weakness in NVDA to initiate or add to positions.”

Bear Stearns chip analyst Gurinder Kalra Monday morning takes the bullish view, and advises that it is “still too early to take profit on NVDA.” He repeats his Outperform rating. “Longer term, we maintain out view that AMD is under-investing in graphics and that ATI is a weaker graphics competitor after the merger than before the merger. We believe any share shift with the current generation of products, and potential share shift in notebook GPUs next year, are simply due to AMD finally having the products and OEMs wants to keep Nvidia honest.”

Kalra Monday raised his estimate for the January 2008 fiscal year to $1.45 from $1.39; for FY ‘09 he goes to $1.65, from $1.58.

One final note on Nvidia: the stock was one of three “pans” in this week’s Barron’s cover story by my colleague Mark Veverka on the outlook for technology stocks.

Nvidia Monday is down $1.54, or 4.5%, at $32.86.