Rare downgrade for Nvidia as analyst airs valuation concerns

Rare downgrade for Nvidia as analyst airs valuation concerns
After the breathless rally since last year, the stock has no room left to run, he argues.
JUL 05, 2024
By  Bloomberg

Nvidia Corp.’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.

Ferragu downgraded the AI-focused chipmaker to neutral from buy, writing that the stock is “getting fully valued” after soaring 157% this year, on top of a gain of almost 240% in 2023. Shares fell 0.6% on Friday, compared with a gain of 1% for the Nasdaq 100 Index.

Additional upside “will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet,” Ferragu wrote.

While the “quality of the franchise is nevertheless intact,” there is, “if anything, a risk of derating” should the current outlook remain unchanged, he added.

Nvidia is the second-best performer among S&P 500 components this year, behind Super Micro Computer Inc, another favorite among AI investors. The climb has added $1.9 trillion to Nvidia’s market capitalization, and briefly resulted in it attaining the title of the world’s largest company.

Analyst downgrades are rare for a company that has become the biggest beneficiary of the artificial intelligence spending boom. Nearly 90% of the analysts tracked by Bloomberg recommend buying the stock. However, valuation is often cited as a concern. Nvidia trades at nearly 23 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this measure.

New Street set a one-year price target of $135 for Nvidia, compared with its most recent close of $128.28.

Beyond Nvidia, New Street is positive on both Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co Ltd., citing their growth trends and valuations.

AMD and TSMC are “the best names to own in the group, offering strong upside in both in our base and high scenarios,” New Street said in a note, adding that among other stocks with AI exposure, Broadcom Inc., Arista Networks Inc. and Micron Technology Inc. all “remain attractively valued.”

Latest News

Five-person Raymond James team jumps to Janney in Maryland
Five-person Raymond James team jumps to Janney in Maryland

The group led by a 37-year industry veteran brings $470 million in assets to the Philadelphia-based broker dealer.

$20B Merit looks to next phase as Constellation takes minority stake
$20B Merit looks to next phase as Constellation takes minority stake

The Atlanta, Georgia-based national wealth firm revealed its new PE partner as prior backers Wealth Partners Capital Group and HGGC’s Aspire Holdings exited their investments.

$350M father-son duo hops from Osaic to Equitable Advisors
$350M father-son duo hops from Osaic to Equitable Advisors

The latest departures in Ohio mark another setback for the hybrid RIA, which is looking to "expanding its presence across all models and segments of the wealth management industry.”

Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds
Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds

The St. Louis-based real estate investment firm gives the asset management giant a valuable access point to the roughly $1 trillion net lease market.

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.