JP Morgan gets slightly more optimistic about NVIDIA

JP Morgan analysts report NVIDIA is on track to beat their prior fiscal Q1 2010 revenue and earnings per share estimates, due to strength from the chipset segment. The report doesn't get into the details but it's likely related to better than expected sales of the MCP79 chipset series. However, there's still concern about the graphics chip maker's margins, inventory levels and the chipset license issue with Intel. More details at Barrons.

Our checks indicate orders for chipsets are robust due to inventory replenishment and some share gains in Intel -based (INTC) chipsets. We believe the company's graphics-chip business (74% of fiscal fourth-quarter 2009 sales) should be flattish sequentially in the April quarter.

However, we also believe a higher mix of low-margin chipsets (coupled with high inventories) should limit gross-margin recovery in calendar 2009/calendar 2010, and we are lowering our calendar 2010 estimated gross margin from 40% to 38%. We would also note risk of sustainable revenue exists for Nvidia as Intel plans on ramping new processors in the second half of calendar 2009 for which Intel claims Nvidia does not have rights to sell chipsets.

Shares of NVIDIA (NVDA) have topped $12 today, the highest level since September 2008. NVIDA has had a rough ride in the last couple of years, the stock peaked just under $40 in late 2007 and hit a bottom at $5.75 in November 2008.