Key Takeaways:
- Nvidia’s stock downgraded to neutral by New Street due to valuation concerns.
- Nvidia has surged 154% this year but may face derating risks.
- New Street favors AMD and TSMC for better growth and valuation potential.
What Happened?
Nvidia Corp. has been downgraded by New Street Research analyst Pierre Ferragu from a buy to a neutral rating. Despite a staggering 154% surge in its stock price this year and a 240% rise in 2023, Ferragu believes the stock is “getting fully valued.”
On Friday, Nvidia shares fell 1.9%, contrasting with a 1% gain in the Nasdaq 100 Index. New Street set a one-year price target of $135, compared to Nvidia’s Friday close of $125.82.
Why It Matters?
Valuation concerns are crucial for investors considering Nvidia. Despite the company being a major beneficiary of the AI spending boom, its high valuation—trading at over 22 times its estimated revenue for the next 12 months—makes it the most expensive stock in the S&P 500 Index.
Ferragu highlighted that further upside is only likely in a “bull case” scenario beyond 2025, which remains uncertain. This downgrading suggests potential risks for investors, especially if the current outlook doesn’t improve.
What’s Next?
Investors should watch for Nvidia’s future earnings reports and market performance to gauge whether the high valuation is justified. While Nvidia remains a significant player in AI, New Street suggests that Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor Manufacturing Co Ltd. (TSMC) offer stronger upside potential and more attractive valuations.
Additionally, AI-exposed stocks like Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. are also noted as attractively valued by New Street. Keep an eye on these companies as potential investment alternatives in the AI sector.
