(Bloomberg) — Nvidia Corp.’s blistering rally since early last year has finally run out of room to rise, according to New Street Research analyst Pierre Ferragu.
Most read on Bloomberg
Ferragu downgraded the AI-focused chipmaker to neutral from buy, writing that the stock is “fully priced in” after soaring 157% this year on top of a nearly 240% gain in 2023. The stock fell 0.6% on Friday, compared with a 1% gain for the Nasdaq 100 index.
A further increase “will only materialize in a bullish case, where the outlook beyond 2025 increases materially, and we are not yet convinced that this scenario will play out,” Ferragu wrote.
While “the quality of the franchise is intact,” there is, in any case, “a risk of devaluation” if the current outlook remains unchanged, he added.
Nvidia is the second-best performer among S&P 500 components this year, behind Super Micro Computer Inc., another favorite among artificial intelligence investors. The rise has 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 emerged as the biggest beneficiary of the artificial intelligence spending boom. Nearly 90% of analysts tracked by Bloomberg recommend buying the stock. Valuation is often a concern, though. Nvidia trades at nearly 23 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 by this measure.
New Street set a one-year price target of $135 on Nvidia, compared with its most recent close of $128.28.
Beyond Nvidia, New Street has a positive view 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 both our base and high case scenarios,” New Street said in a note, adding that among other stocks with AI exposure, Broadcom Inc., Arista Networks Inc. and Micron Technology Inc. “remain attractively valued.”
(Updates stock movements in second paragraph.)
Most read from Bloomberg Businessweek
©2024 Bloomberg LP