(Bloomberg) — Nvidia Corp.’s meteoric rise since the start of last year has finally run out of room to grow, according to analyst Pierre Ferragu of New Street Research.
Bloomberg’s most read articles
Ferragu downgraded the AI-focused chipmaker to neutral from “buy,” writing that the stock “is fully valued” after soaring 157% this year, on top of a nearly 240% gain in 2023. Shares fell 0.6% Friday, compared with a 1% gain for the Nasdaq 100 index.
A further increase « will only materialise in a bullish case, in which the outlook beyond 2025 increases significantly, and we are not yet convinced that this scenario will come to pass, » Ferragu wrote.
Although « the quality of the franchise is nevertheless intact », there is « if necessary, a risk of downgrading » if the current outlook remains unchanged, he added.
Nvidia is the second-best performer in the S&P 500 this year, behind Super Micro Computer Inc., another favorite of artificial intelligence investors. The surge added $1.9 trillion to Nvidia’s market capitalization and briefly earned it 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 analysts tracked by Bloomberg recommend buying the stock. However, valuation is often cited as a concern. Nvidia trades at nearly 23 times estimated 12-month revenue, making it the most expensive stock in the S&P 500 by that measure.
New Street set a one-year price target of $135 for Nvidia, up from 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 potential in our base and high scenarios,” New Street said in a note, adding that among other AI-exposed stocks, Broadcom Inc., Arista Networks Inc. and Micron Technology Inc. “all remain attractively priced.”
(Updated shares in second paragraph.)
Bloomberg Businessweek’s Most Read Articles
©2024 Bloomberg LP