Expect Margin Pressure to Weigh on Nvidia Following Earnings Warning

7/3 - "Nvidia (NVDA) is a name a few readers have nominated as we looked for some new names in the tech space - the stock was approaching a triple bottom in the $18s after starting the year in mid $30s (50% drop). However, last night after the bell we had some uninspiring news and the stock is down an additional 28% to near $13. And just like that someone can lose 2/3rds of their money in 7 months. But remember, "tech is safe" because it has no exposure to oil. This is a trecherous market - the indexes as bad as they are, are masking some of the carnage in individual names."

"The company blamed the worse-than-expected results on weak global demand, and delays in ramping its new integrated graphics chip...Goldman Sachs analyst James Schneider... cut his fiscal second-quarter gross margin forecast to 40 percent from about 46 percent, citing near-term pricing pressure."

"So again, "tech is safe" because it has no exposure to oil, yet it has exposure to producers and consumers which are slowing. But that's Wall Street logic for you."

7/3 - "AmTech maintains BUY and believes NVDA will recover within 3 quarters...JMP Securities maintains OUTPERFORM, lowered target from $30 to $20 and recommends buying the stock on weakness, as the firm still believes that NVDA is the leader in the high-growth markets for 3-D graphics, visual computing, and low-power/high-definition video and multimedia processors...Oppenheimer upgraded NVDA from Perform to OUTPERFORM, target price $18, because the firm believes all the issues killing the stock are now well understood and over-compensated for."

"Deutsche reiterates HOLD, lowered target from $22.50 to $10.50 and believes there is no upside in the near-term until NVDA recaptures product leadership in GPUs...JP Morgan downgraded NVDA from Overweight to NEUTRAL...Needham downgraded NVDA from Buy to HOLD as they see the chip problems persisting for several quarters."

7/3 - "NVDA cited end-market weakness for the lower forecast, which could be a bad sign for INTC. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on INTC."

"I would consider an August bear-call credit spread above the $23 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.0% return in six weeks as long as INTC is below $23 at August expiration. Intel would have to rise by more than 11% before we would start to lose money."

"This trade could be risky if the company's earnings (due out on 7/15) are a positive surprise, but even if that happens, this position could be protected by resistance INTC might find at its 50 day moving average, which is currently around $23 and falling."