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Nvidia's Rally Hits a Roadblock
Nvidia Corp’s impressive rally, which has been accelerating since early last year, appears to have reached its peak for the time being. A recent analysis suggests that the stock may be nearing its full valuation, prompting investor caution.
Market Movements and Analyst Downgrade
New Street Research analyst Pierre Ferragu has downgraded Nvidia from a "buy" to a "neutral" rating. This adjustment comes after the stock's remarkable 156% rise this year, on top of nearly 240% in 2023. On Friday, Nvidia shares decreased by up to 2%, whereas the Nasdaq 100 Index saw nearly a 1% gain.
Ferragu noted that while the quality of Nvidia's franchise remains strong, there is a risk of revaluation if the current market outlook does not change. He emphasized that further gains in Nvidia's stock price would likely require a significantly improved outlook beyond 2025, a scenario he currently views with caution.
Nvidia's Dominance in AI Investment
Despite the downgrade, Nvidia continues to enjoy robust support among analysts. Approximately 90% of analysts tracked by Bloomberg still recommend buying the stock. Nvidia is trading at nearly 23 times its projected revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this metric. It holds the second-best performer position in the S&P 500 for the year, following closely behind Super Micro Computer Inc., another popular choice among AI investors.
Nvidia's market capitalization has surged by $1.9 trillion owing to its impressive stock performance, at one point making it the world's largest company. New Street has set a one-year price target of $135 for Nvidia, which is slightly above its most recent closing price of $128.28.
Positive Outlook for AMD and TSMC
In their analysis, New Street also expressed optimism about Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor Manufacturing Co Ltd. (TSMC). They cited strong growth trends and favorable valuations, describing these companies as the best options within the group for both base and optimistic investment scenarios.
Additionally, they identified Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. as attractively valued stocks with AI exposure. These companies present significant potential upside, according to New Street's assessment.
