What Is The Risk To Nvidia If Intel-AMD Partnership Captures Notebook GPU Market Share?
There is little doubt that the partnership that Intel (NASDAQ:INTC) and AMD (NYSE:AMD) announced recently is aimed at combating rival Nvidia (NASDAQ:NVDA), which is becoming increasingly competitive. Under this partnership, the two companies will create a new chip which will combine Intel’s CPU with AMD’s Radeon GPU technology. This chip will be geared towards high-end gaming notebooks, and will allow OEMs to develop lighter and thinner notebooks without losing the massive processing power that high-end gaming requires. So what’s the magnitude of risk that this strategy poses for Nvidia? We estimate that if Nvidia loses 10-15% of its share in the notebook GPU market, its valuation can take nearly a 10% hit. Take a look at our interactive breakdown of key drivers and metrics for Nvidia to see how this can happen. Our price estimate for Nvidia stands at $134, implying a significant discount to the market.
Nvidia Could Lose 10% Value If Its Market Share In Notebook GPUs Falls From 70% to 55%
Intel and AMD have partnered to embed Radeon’s discrete graphics technology within Intel’s CPUs to create lighter gaming notebooks. However, the risk to Nvidia’s valuation will be meaningful only if it loses its market share significantly. We estimate that if Nvidia’s share of discrete notebook GPUs declines from an estimated 70% to 55%, the company could lose 10% of its value. In this scenario, both the number of units and pricing can fall meaningfully below what we expect.
Decline In Market Share And Pricing Would Cut Into Nvidia’s Notebook GPU Revenue
The charts below show how our downside case forecasts diverge from our base case:
If the company’s market share declines, Nvidia will be forced to reduce prices to compete. A decline of 15% in market share and a 25-30% reduction in pricing would lead Nvidia’s notebook GPU revenues to fall nearly 50% below what we forecast in the long run. This, in turn, would imply a 10% decline in the company’s valuation.
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