Morgan Stanley Issues Tactical Trading Short on Nvidia (NVDA,INTC)

by Chip Brian

nvda12/7/2009-Morgan Stanley analyst Mark Lipacis issued a Research Tactical Idea to clients Monday regarding Nvidia (NASDAQ:NVDA) following news that Intel had scrapped plans for its consumer market chip, the "Larrabee."

Lipacis said that Morgan Stanley believes the company's share price will fall relative to the industry over the next 60 days.

Lipacis also said that today's WSJ article entitled "Intel Scraps Plans for Graphics Chip," will confuse investors, who will mistake the "competitive threat from Intel (NASDAQ:INTC) in the discrete GPU market with the integrated MPU+GPU market."

"While Intel has not commented, we had previously published that Intel's Larrabee discrete GPU would likely be intcdelayed, and did not model negative impact to Nvidia in the high end discrete GPU market. However, we continue to believe that Intel's integrated MPU+GPU effort (Arrandale and Clarkdale) is on track for 1Q2010. We are modeling Nvidia's core GPU revenues to decline by 8% and its chipset revenues to decline by ~25% in 2010 due to competitive pressures from Intel and AMD. We view Intel's ramp of its integrated MPU+GPU products in 1Q10 as a potential negative catalyst for Nvidia."

Morgan Stanley said there was a 70% to 80%, or "very likely," chance of the scenario taking place.

MS has an Underweight rating on Nvidia and a Cautious view on its overall industry.

Nvidia shares are up 13.4% and Intel is trading 0.4% lower Monday.