ThinkEquity has downgraded Nvidia (NASDAQ: NVDA), a graphics chip maker, to hold from buy on valuation metrics.

We are lowering our rating from Buy to Hold as the stock surpasses our $24 price target and we believe that NVDA shares are fairly valued at 21x our FY12E EPS relative to our outlook for 20 percent secular earnings growth, analyst Krishna Shankar wrote in a note to clients.

Shankar expects Nvidia to report earnings of 19 cents a share on revenue of $896 million for the fourth quarter, which the company is set to announce on Feb.16.

..we expect slightly better-than-seasonal 2 percent to 4 percent guidance for revenue growth for the first quarter driven by smartphone/tablet platforms, Shankar wrote.

The analyst also cautions investors that the tablet/smartphone processor market is likely to be fragmented, with Nvidia achieving success in the high end (20 to 25 percent of smartphone market) and revenues from PC and server chips based on ARM architecture are two to three years away with tough competition from Intel, AMD.

Shankar said that Nvidia has significant opportunities for gross margin expansion from current levels in the 45-48 percent range to levels in the 54-55 percent range over the next 24 months based on continued manufacturing efficiencies and a richer product mix involving high-end PC and workstation graphics, professional solutions, and the Tegra 2 mobile platform business.

Shares of Nvidia closed Monday's regular trading session at $24.60 on Nasdaq.