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Everybody loved this computer chip maker, until today

by Peter A. McKay
Sep 21 2017, 1:00am

The business that gave Silicon Valley its name — making microchips out of wafers pressed from the abundant crystalline element known as silicon — still matters a lot to the tech industry.

If you need a reminder, look no further than the booming fortunes of Nvidia, a chip maker based in Santa Clara, Calif., that specializes in making chips used to process the data-heavy animations and graphics that are central to video games and, increasingly, artificial intelligence.

The chipmaker’s shares have soared nearly 70 percent this year and nearly eightfold over the last two years, as the company has consistently beat expectations due to consumers’ increasingly voracious appetite for new gadgets. The stock is up more than 1,200 percent over the last five years.

But the company’s shares suffered a rare setback Thursday, falling 2.7 percent, the sixth-worst performance of any stock in the S&P 500 index. The selloff followed a pair of adverse stories: CNBC reported that rival chip producer Advanced Micro Devices is nearing a deal with Tesla to make chips for the carmaker’s self-driving vehicles.

Adding to pressure on the stock was the fact that Nvidia cut the price of its set-top streaming box, the Shield TV, to $179 from $200 for the base model in preparation to compete with Apple’s recently unveiled Apple TV 4K.

Those were also likely good excuses for traders to simply take some money off the table after Nvidia’s dizzying rally in recent years. But in general, the company remains a Wall Street darling due to its strong earnings and promising artificial-intelligence projects.

RBC Capital Markets chip analyst Mitch Steves put out a report Wednesday evening, just after the AMD-Tesla story broke, reiterating his upbeat “outperform” rating and $205 target share price for on Nvidia. He also urged clients to “ignore the noise” about AMD, according to Barron’s.

Other key details:

  • Former AMD chip designer Jim Keller now works at Tesla. That may have helped pave the way for a deal between the two companies, according to MarketWatch. But opportunities with other carmakers still abound for Nvidia, since all the major manufacturers are working on some version of self-driving vehicles.
  • The Apple TV 4K will use a chip called the A10X, made by Taiwan Semiconductor Manufacturing Co. But earlier generations of Apple TVs did use Nvidia chips.
  • Nvidia is often credited with inventing the Graphics Processing Unit, a dedicated chip within a computer to enhance animations and visuals, in the late ‘90s. It remains particularly popular among gamers.

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