In a rare move, Nvidia‘s stock rating was downgraded, sparking increased concerns about the company’s and AI‘s long-term prospects.
On July 5, Pierre Ferragu, an analyst at New Street Research, downgraded Nvidia from a “buy” to a “neutral” rating. Ferragu’s decision was based on the belief that the recent surge in Nvidia’s stock price has already factored in much of the company’s future growth potential, warranting a more cautious stance now.
Ferragu set a target price of $135 for Nvidia, a figure that, while higher than the current stock price, is lower than the year’s peak. In 2023, Nvidia’s stock price skyrocketed by 225%. The upward trend has continued into 2024, with the stock rising another 156% since the start of the year.
New Street Research analysts argue that for Nvidia’s stock to keep climbing, Wall Street must see robust demand post-2025, a prospect that remains uncertain. Consequently, Ferragu advises investors to consider buying Nvidia shares during periods of price stagnation.
Ferragu’s bearish outlook on Nvidia is a minority view among analysts. According to TipRanks.com, 37 out of 41 analysts rate Nvidia as a “buy,” while only four recommend holding the stock.
Adding to the unease, doubts are surfacing about AI’s ability to generate significant revenue. David Cahnhi, an analyst at Sequoia Capital, highlighted that the easing of supply shortages and increasing GPU inventories pose challenges. He estimates that AI companies would need to earn about $600 billion annually to sustain their AI infrastructure, including data centers.
Interestingly, despite downgrading Nvidia, Ferragu remains optimistic about the stock performance of AMD and TSMC. He set target prices of $235 for AMD and NT$1,200 for TSMC, reflecting potential increases of 37% and 19%, respectively, from their current prices.
As Nvidia navigates these headwinds, the market will closely watch its ability to meet future demand and AI’s evolving economic landscape.
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