Nvidia's rally pauses as analyst downgrades stock

Nvidia's stock downgraded to neutral after a 154 percent rise this year, reaching full valuation

Nvidia's rally pauses as analyst downgrades stock

Nvidia Corp.’s rapid rally since the start of last year has reached its peak, according to New Street Research analyst Pierre Ferragu.  

BNN Bloomberg reports that Ferragu downgraded the AI-focused chipmaker to neutral from buy, stating the stock is “getting fully valued” after soaring 154 percent this year, on top of a gain of almost 240 percent in 2023.  

Shares fell 1.9 percent on Friday, compared with a gain of 1 percent for the Nasdaq 100 Index.   

Ferragu noted that additional upside “will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet.”  

He added that while the “quality of the franchise is nevertheless intact,” there is “if anything, a risk of derating” should the current outlook remain unchanged.   

Nvidia remains the second-best performer among S&P 500 components this year, trailing only Super Micro Computer Inc., another favourite among AI investors. The climb has added almost US$1.9tn to Nvidia’s market capitalization, briefly making it the world’s largest company.   

Analyst downgrades are rare for Nvidia, which has significantly benefited from the artificial intelligence spending boom. Nearly 90 percent of analysts tracked by Bloomberg recommend buying the stock, though valuation concerns persist.  

Nvidia trades at more than 22 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this measure.   

New Street set a one-year price target of $135 for Nvidia, compared with its Friday close of $125.82. Beyond Nvidia, New Street is optimistic about 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 in both our base and high scenarios,” New Street noted. Other stocks with AI exposure, including Broadcom Inc., Arista Networks Inc., and Micron Technology Inc., “remain attractively valued.”