NVIDIA Stock Bounces Back After Uber Clarification

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NVIDIA Corporation (NASDAQ:NVDA) stock began to rally in the premarket trading hours on Thursday after plunging on Tuesday. The chip maker increased its outlook for the data center market on Wednesday, but that wasn’t enough to give its shares a boost. NVIDIA stock plunged on Tuesday after the company said it was pausing the tests of its self-driving car system in the wake of the deadly accident involving an autonomous Uber vehicle.

Given the relationship between NVIDIA and Uber, many investors may have taken that move to mean that the ride-sharing firm was using the chip maker’s self-driving system, but NVIDIA management clarified this morning that it isn’t the case.

NVIDIA stock sells off as sentiment shifts on DRIVE platform

The chip maker held its GPU conference this week, and analysts have generally been positive on the announcements that have come from the conference. On the last day of the conference, CEO Jensen Huang clarified the relationship with Uber in response to a question. More than 370 companies do use the DRIVE platform, but Uber isn’t one of them. Huang said the ride-sharing firm “develops its own sensing and drive technology,” although it is using NVIDIA’s GPUs and other processors to run its software and self-driving platform.

Huang’s comments make sense, given the report we heard recently that Uber was close to selling its own self-driving technology to Toyota. It seems pretty safe to say that the deal might be off—if there really was one pending in the first place.

This is an important distinction because it clears the chip maker’s DRIVE platform of implication in the deadly accident involving an autonomous Uber vehicle that struck a pedestrian. Even though the DRIVE platform wasn’t implicated in the accident, NVIDIA decided to pause open-world testing of the platform, although it still is running closed tests. The chip maker said it’s waiting for the results of the investigation into the Uber accident to see what it can learn from it.

Macquarie analyst Srini Pajjuri did warn that the Uber accident might delay adoption of the company’s DRIVE platform if it attracts increased regulation, but he also said that self-driving car revenues are still two or three years away for NVIDIA.

Selloff in NVIDIA stock was “excessive”: analyst

In a note on Tuesday, before the clarification the involvement with Uber, B. Riley FBR analyst Craig Ellis said he felt the selloff in NVIDIA stock was overdone. At the time of his note, the stock was down 7%, which he said discounted an $840 million decline in sales. That amounts to 195% of the automotive sales he was estimating for fiscal 2020 and 150% of what he was estimating for calendar year 2019. He called this discount “excessive,” and then after his note, NVIDIA stock plunged even further, discounting even more sales.

He also noted that this year’s automotive sales are still mostly coming from displays, with the “autonomous handoff” not coming until next year. Further, he sees the chip maker’s “pause, analyze, learn, and correct” approach to self-driving technology as “prudent” in the wake of the deadly Uber accident.

More than just automotive

NVIDIA is still much more than just automotive sales, as that’s a relatively new market for it, and analysts found plenty of other things to like at the company’s conference and during its analyst day. For example, the chip maker increased its total addressable market for artificial intelligence and machine learning data centers from $30 billion to $50 billion. The company also highlighted its system for training self-driving cars this week.

The chip maker also focused on its new Raytracing technology, which Macquarie’s Pajjuri described as “a major step towards real time photorealistic light rendering.” NVIDIA developed it with Microsoft, and he expects this partnership to result in strong adoption in gaming this year. He also noted that NVIDIA’s Pascal installed base in its GeForce line only sits at 30%, and he feels part of the reason this share is so low is because of supply constraints caused by the cryptocurrency mining craze. However, prices for the company’s graphics cards are rising, and management expects average selling prices to near those of consoles.

NVIDIA stock initially rose in premarket trading this morning, climbing by about 1%, but it reversed course again after the bell. It remains in the green as of this writing, however. The broader tech sector has been struggling this week, with chip stocks, in particular, weighing on the sector.

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