Analysis: NVDA INTC

Shortly after the opening bell, we will be exiting our position in Nvidia (NVDA) , selling 100 shares at a bid/ask of roughly $267.26/267.99.

As we wrote when we cut our position in half last Monday when the stock was at $284 (see our Alert here), we have some concerns about the upcoming quarter due to an industry headwind and a GPU transition period. This sale will not be as near-perfectly timed as when we cut the position in half last Monday at about $284, but our average sale price between the two sales is strong, nonetheless.

To refresh why we initially downgraded the stock to a Two and cut the position in half, our concerns in NVDA related to Intel's (INTC) processor shortages, which TheStreet's Eric Jhonsa wrote about here. The reason this is important is because if CPU supplies are short, then there are less GPU-containing computers being supplied. The implications could be far reaching to the PC GPU market, especially since Nvidia needs everything to be firing on all cylinders to beat the lofty expectations it has on each print. Although Intel has since come out in defense of its production targets, any sluggishness will most certainly impact industry sales and we still view this as a potential headwind as we approach the end of the year and investors point their attention to 2019.

Additionally, we think the transition to new Turing-architecture gaming GPUs may be slower than expected. While we are high on the chips for its impressive performance and capabilities in the long run, it normally takes two to three years before software is developed that can take full advantage of next-generation hardware, in this case the company's new Turing architecture. That's a risk to earnings that we do not want to take.

All in all, we still love the long-term story here and we will add the stock to the Bullpen and will look to re-enter a position should the headwinds abate and the stock falls to a lower price. Looking back on the position over the past 14 months, we have let Nvidia run and correctly defended it several times against the shorts. While the long-term thesis still holds, we cannot let ourselves become greedy and lose sight of the challenges that will face the industry. With our sale, we will realize a terrific average gain of approximately 34%.