Nvidia Corporation’s impressive stock rally, which began last year, has hit a roadblock, according to Pierre Ferragu, an analyst at New Street Research.
Analyst Downgrade and Reasons
Ferragu downgraded Nvidia’s stock from a buy to a neutral rating, citing concerns that the stock is now fully valued. Nvidia’s shares had surged by 154% this year, following a 240% gain in 2023.
On Friday, Nvidia’s stock dropped by 1.9% during the trading session, despite the Nasdaq 100 Index gaining 1% that day.
Future Outlook
Ferragu mentioned that any significant further upside for Nvidia would only happen in an optimistic scenario beyond 2025, which he is not convinced will occur yet.
While Ferragu acknowledged Nvidia’s strong market position, he cautioned about the risk of the stock being valued lower if conditions change.
In 2024, Nvidia ranks as the second-best performer among S&P 500 companies, trailing behind Super Micro Computer Inc., another popular choice among chip and AI investors.
Financial Metrics
The surge in Nvidia’s stock boosted the company’s market value by $1.9 trillion, briefly making it the world’s largest company.
It is rare for analysts to downgrade a stock like Nvidia, especially amid the artificial intelligence boom. It was noted that around 90% of analysts continue to maintain a buy rating on Nvidia, despite concerns over its valuation.
Nvidia’s stock currently trades at over 22 times the estimated revenue for the next year, making it one of the most expensive stocks in the S&P 500 Index based on this metric.
Revenue Potential
Nvidia is set to ship more than 1 million units of its new H20 product to China, with each unit estimated to cost between $12,000 and $13,000, potentially generating over $12 billion in revenue for the company, as reported by The Register citing SemiAnalysis. Nvidia declined to comment on the deal.
Target Price
Following Friday’s close, New Street Research set a one-year target price for Nvidia at $135, compared to $125.82. The analyst firm remains positive on stocks like Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), citing favorable valuations and growth prospects.
New Street Research highlighted AMD and TSMC as strong contenders in the sector, along with companies like Broadcom Inc., Arista Networks Inc., and Micron Technology Inc., which they consider to be attractively valued.
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