Analyst Issues Rare Downgrade on Nvidia, Cautions on Potential Future Upside

Nvidia Corp., a leading AI-focused chipmaker, has seen a significant surge in its stock price over the past year. However, according to New Street Research analyst Pierre Ferragu, the rally may have reached its peak. Ferragu recently downgraded Nvidia from buy to neutral, citing concerns that the stock is becoming fully valued.

The stock has soared an impressive 157% this year, on top of a gain of almost 240% in 2023. While the quality of Nvidia’s franchise remains strong, Ferragu believes that any further upside would only come in a bull case scenario where the outlook beyond 2025 improves significantly.

Nvidia is currently the second-best performer among S&P 500 components, trailing only behind Super Micro Computer Inc. Analysts have overwhelmingly recommended buying the stock, with nearly 90% giving it a positive rating. However, concerns about valuation persist, as Nvidia trades at almost 23 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 by this measure.

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New Street Research has set a one-year price target for Nvidia at $135, compared to its recent close of $128.28. Beyond Nvidia, the research firm is bullish on Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co Ltd., citing their growth trends and valuations. Additionally, New Street believes that stocks like Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. with AI exposure are attractively valued.

It’s important for investors to keep a close eye on the evolving landscape of the semiconductor industry, as new developments and advancements in technology could impact the performance of key players like Nvidia. Stay informed and make informed decisions to ensure your investment portfolio remains diversified and resilient in the face of market fluctuations.