The stock benefited from AAPL's blow out earnings on Monday and hit a new 52 week high. Then, early yesterday, American Technology issued a sell warning. Analyst Doug Freedman cut his rating on the graphics chip maker to Sell from Neutral and set a $30 price target on the stock.This analyst believes that the stock has had a huge run acquiring rival ATI (the other ATI - as in technology - and not the metals company I follow) by Advanced Micro Devices. Freedman predicts that ATI will become more competitive in the coming year as soon as they release their new chip (currently code named Fusion) and that the logic of the ATI/AMD combination “will begin to bear fruit” by 2009 when the chip hits the market.
I don't know about you, but I think the guy is a little ahead of himself here. We are basically 4.5 quarters away from this new chip's release and this is cutting edge technology where 18 months is a lifetime. NVDA ran circles around ATI when they were a stand-alone company and suddenly a second rate chip company (to Intel) is suddenly going to be a deal killer for NVDA? I don't think so.
The problem is that NVDA is priced pretty much for perfection and, at the margins, I think the analyst has a good point. However, my plan was to not hold NVDA anywhere near that long. This is a rotation seasonal play and I am probably going to be saying "so-long" to the stock in 5 weeks anyway. I am playing this for last quarter's earnings when they report on November 8th.
Therefore, on this dip, I have picked up NVDA DEC37.5 calls yesterday when the stock was around $35.30. I averaged down some today and I am currently underwater. My stock, however, was exercised at $28.33 after the August blow-up, so life is still good.
The analyst has a decent track record, but his downgrade shouldn't affect the stock from here over the next two weeks.
I would probably have bought more NVDA calls today, but I have been slightly distracted by my TIE puts trade and that company being added to the S&P. Lots of fun there and planning to add more TIE puts next week ahead of what I think will be an earnings miss.
3 comments:
This analyst does not have a good track record!!
He downgraded NVDA in January for basically the exact same reasons! He missed over 50% additional gains.
http://blogs.barrons.com/techtraderdaily/2007/01/05/nvidia-amtech-cuts-rating-after-big-run-sees-risk-of-q1-miss/
Hey anti-riskybusiness. Thanks for the comment. I tend to agree with you, but there is no denying that AMD may be significant competition now that they have swallowed ATI. I am in a "show me" mode with AMD and still bullish with NVDA, but I am also not in NVDA for the long term at the moment. My style is to play the fall technology rotation and I am counting on good earnings in two weeks before I sell the news.
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