UPDATE: Goldman Sachs Downgrades NVIDIA (NVDA) to Sell; Analyst Warns of 'Licensing Cliff'

(Updated - March 23, 2015 8:33 AM EDT)

Goldman Sachs downgraded NVIDIA (NASDAQ: NVDA) from Neutral to Sell with a price target of $20. Analyst James Covello pointed to slowing in core markets and warned of a "licensing cliff."

"We view Nvidia as a high-quality company with best-in-class technology and strong management. However, we believe the market has become complacent about the risk of Intel licensing revenue going away (with few sell-side analysts highlighting licensing in analyst day takeaways)," said Covello.

"Our SanDisk, Qualcomm and pharma case studies suggest stocks see 15%-60% multiple compression going into binary events where licensing/patents are in jeopardy. We believe the near-term catalyst to refocus investor attention on longer-term normalized EPS will be weakness in PC fundamentals (which Nvidia noted it is not seeing at its analyst day). We highlight that business tied to the broader PC ecosystem is 55% of EBIT today, with PC OEMs particularly at risk (15%-20% of EBIT ex. licensing)," continued the analyst.

"We could become more positive if Nvidia were to drive enough scale in new segments to offset the $264 mn in annual licensing profit, though we believe that auto & datacenter are becoming more competitive (and drive <10% of EBIT today)," he added.

For an analyst ratings summary and ratings history on NVIDIA click here. For more ratings news on NVIDIA click here.

Shares of NVIDIA closed at $23.47 yesterday.

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