Nvidia’s (NASDAQ: NVDA) stock has had an extraordinary run because its products are central to the AI revolution. Despite a slight sell-off recently, it is up 154% for the year, compared to a 16% increase in the S&P 500.
Most analysts still believe the stock can do better. In June, Yahoo Finance reported that 53 of the 57 analysts covered it had a “strong-buy” or “buy” rating for the stock.
One analyst, New Street Research analyst Pierre Ferragu, recently broke from the pack. He downgraded his rating on the shares from “buy” to “neutral.” Bloomberg reports he said that the stock is “getting fully valued.” The market may support this, at least for the moment. The stock price has not changed much in the last month. Nvidia may not be among the winners in the next massive AI spending boom.
Nvidia does have a steep hill to climb in terms of revenue growth. In the most recent quarter, revenue reached $26 billion, up 262% from the same quarter the year before. EPS of $5.98 was up 629%. A slowdown in growth for the next quarter could be enough to bring the stock price down.
Another challenge is whether Nvidia can keep its manufacturing in pace with demand. If customers have to get chips quickly, they may turn to competitors like AMD (NASDAQ: AMD). While AMD chips have not gotten the accolades Nvidia chips have, last month, AMD announced that its new chip, the MI350, would perform 35 times better than the current MI300 series. At the same time, Nvidia announced an upgrade from its “Blackwell” flagship to a chip named “Rubin.” It is far too early in the chip upgrade cycle to handicap which company is correct. If AMD does gain an edge, it would be another challenge to Nvidia’s stock valuation.
In some ways, Nvidia’s market value is its own worst enemy. Revenue needs to continue rising by three figures each quarter, year over year, to keep Wall Street impressed.
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