Nvidia Corp. Receives Rare Downgrade Over Normalizing Demand Concerns
Nvidia Corp. has recently encountered a rare downgrade from New Street Research, where the analyst expressed worries about the stock’s overvaluation.
New Street Research analyst Pierre Ferragu downgraded Nvidia’s stock due to concerns that it is at risk of getting fully valued following an impressive 161% surge since the beginning of the year. With a previous gain of almost 240% in 2023, Ferragu suggested that any additional upside would rely on a bullish scenario, which is currently uncertain. He also highlighted the potential danger of a derating if the current outlook persists.
The analyst pointed out that despite the ongoing AI hype, there appears to be a normalization in the demand for Nvidia’s AI-focused graphics processing units (GPUs), with client feedback indicating that the demand aligns with expectations.
Ferragu shared his insights in an interview with CNBC, emphasizing that the company’s performance has been inline with their projections, leading to the decision to downgrade Nvidia’s status.
Although Nvidia continues to be the second-best performer among S&P 500 components this year, tailing Super Micro Computer Inc., another AI enthusiast, the concerns raised by Ferragu highlight the need for caution amidst the stock’s soaring market capitalization.
Notably, Nvidia CEO Jensen Huang has been selling off the company’s shares, offloading over $29 million worth of stocks during the 161% surge in 2024. This significant rise has propelled Nvidia’s market value to over $3 trillion, underscoring its dominant influence in the tech sector.
In contrast to the downgrade on Nvidia, New Street Research maintains a positive outlook on both Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor Manufacturing Co Ltd. (TSMC), citing their growth trends and valuations. The research firm views AMD and TSMC as favorable investment options, projecting strong upside potential in various scenarios.
Additionally, among other stocks with exposure to AI technology, New Street Research finds Broadcom Inc. (AVGO), Arista Networks Inc. (ANET), and Micron Technology Inc. (MU) to be attractively priced, emphasizing their value in the market.
The recent surge in U.S. stock prices, driven by the promise of artificial intelligence, raises concerns about potential overvaluation reminiscent of the late 1990s dot-com bubble. As the market remains dominated by a select group of tech giants, including Nvidia, investors are advised to exercise caution and consider the implications of current valuation levels.
Although Nvidia’s downgrade marks a significant development in the tech sector, the diverse perspectives offered by New Street Research shed light on various investment opportunities and trends across the industry.
