Artificial Intelligence
Nvidia’s crazy rally has run out of steam — Analyst
Nvidia’s breakneck rally since the start of last year has finally run out of room to push higher, according to New Street Research analyst Pierre Ferragu.
New Street Research analyst Pierre Ferragu has downgraded Nvidia Corp. from buy to neutral, stating that the stock has reached full valuation. This decision comes after Nvidia’s significant rally, with a 154% increase this year and nearly 240% gain in 2023.
On Friday, Nvidia shares experienced a 1.9% decline, contrasting with the Nasdaq 100 Index, which saw a 1% increase.
Ferragu indicated that any further potential upside would depend on a bullish scenario where the outlook post-2025 sees substantial growth, a scenario for which there is currently insufficient conviction.
While acknowledging the sound quality of Nvidia’s franchise, Ferragu cautioned about a possible risk of devaluation if the current outlook remains unchanged.
Currently, Nvidia ranks as the second-best performer among S&P 500 components in 2024, following Super Micro Computer Inc., which is also favored by AI investors.
Nvidia’s market capitalization has increased by close to $1.9 trillion during its climb, briefly propelling it to the position of the world’s largest company.
Despite Nvidia’s dominance in AI technology spending, analyst downgrades are uncommon. Approximately 90% of analysts tracked by Bloomberg recommend buying Nvidia’s stock.
However, concerns about valuation persist, with Nvidia trading at over 22 times the estimated revenue for the next 12 months, making it the priciest stock in the S&P 500 Index by this metric.
New Street Research has set a one-year price target of $135 for Nvidia, contrasting with the stock’s Friday closing price of $125.82.
Looking beyond Nvidia, New Street Research holds a positive view on Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co Ltd., citing their growth trajectories and valuations.
New Street Research notes that AMD and TSMC are standout choices in the industry, offering significant upside potential across various scenarios. Additionally, New Street Research finds Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. to be attractively valued among other stocks with AI exposure.
