Nvidia Corp. (NASDAQ:NVDA) has seen its remarkable rally since the beginning of last year come to a halt, at least temporarily. This assessment comes from New Street Research analyst Pierre Ferragu, who has downgraded the AI-focused chipmaker from a buy to a neutral rating, citing that the stock is “getting fully valued” after its impressive 156% surge this year and nearly 240% gain in 2023. Following the downgrade, shares fell as much as 2% on Friday, while the Nasdaq 100 Index saw nearly a 1% gain.
Analyst’s Perspective on Nvidia’s Valuation
Ferragu suggests that additional upside for Nvidia will only be realized under a bullish scenario where the outlook beyond 2025 significantly improves, a conviction he does not hold at the moment. Despite acknowledging the robust quality of Nvidia’s franchise, he warns of a potential risk of derating if the current outlook remains unchanged.
“Nvidia’s valuation is now at a point where further growth requires more substantial long-term prospects, which we are not confident in predicting at this time,” Ferragu stated.
Nvidia’s Dominance in the AI Market
Nvidia has been a major beneficiary of the artificial intelligence spending boom, with nearly 90% of analysts tracked by Bloomberg recommending buying the stock. It trades at almost 23 times its estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this metric. Nvidia is the second-best performer among S&P 500 components this year, following Super Micro Computer Inc. The company’s market capitalization has grown by $1.9 trillion, briefly making it the world’s largest company.
New Street Research has set a one-year price target of $135 for Nvidia, compared to its most recent close of $128.28.
Positive Outlook for Other AI Stocks
Beyond Nvidia, New Street Research holds a positive outlook on Advanced Micro Devices Inc. (NASDAQ:AMD) and Taiwan Semiconductor Manufacturing Co Ltd. The firm cites strong growth trends and favorable valuations for these companies.
“AMD and TSMC are top picks within the semiconductor group, offering substantial upside in both base and high-growth scenarios,” New Street stated in a note.
Other Attractive AI Stocks
New Street also highlights other AI-exposed stocks such as Broadcom Inc. (NASDAQ:AVGO), Arista Networks Inc. (NYSE:ANET), and Micron Technology Inc. (NASDAQ:MU) as being attractively valued.
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