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Citron Research Negative on NVIDIA (NVDA); Sees Stock Back to $90

December 28, 2016 9:39 AM EST

Citron Research negative on NVIDIA (NASDAQ: NVDA), sees stock heading back to $90 in 2017.

The group cited six reasons:

1. Growth/Market Share: Much of NVDA's growth has come from gaming and at AMD's expense, as opposed to new total addressable markets

2. Data Center Competition: There's significant competition from existing and emerging players (Intel Xeon Phi, AMD Radeon Pro, XLNX). Also, AMD is launching new GPU's for desktop and server in Q1 2017 and Q2 2017.

3. Intellectual Property: If you beleive that NVDA has embedded IP that makes it worthy of its premium valuation, you need to be aware that Intel already has access to this IPO from a licensing deal with NVDA that ends this year.

4. Intel Licensing Revenue: Attrition will have a significant effect on 2017 EBITDA

5. Gross Margin Sustainability: As Intel competition enters the fray in mid-2017, this competition should have a significant impact on NVDA's gross margins. NVDA is a fabless producers, with TSMC making all of its GPUs. Intel, on the other hand, is vertically integrated. TSMC makes a 50% gross margins on NVDA's business, to which NVDA adds another 80% gross margin of its own. Intel could charge 37% less for its chips and still generate 80% gross margins.

6. Competition from Custom Silicon and GPU Workarounds: Competition from existing consumers (Google's TPU, Apple).



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