This Analyst Thinks NVIDIA Will Fall 40%

By Douglas A. McIntyre Published Aug 24, 10:01AM EDT

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This Analyst Thinks NVIDIA Will Fall 40% — © Deemerwha studio / Shutterstock.com

Seaport Global Securities analyst Jay Goldberg downgraded NVIDIA (NASDAQ: NVDA | META Price Prediction) three months ago. He put a “sell” on the stock and a price target of $100. The idea is not so wild because NVIDIA traded there on April 21. This was just four months ago.

NVIDIA will announce earnings this week. Even if the company reports disappointing earnings, the stock will not immediately reset to $100 from its current price of $177. However, there are two cases against NVIDIA’s current valuation. The first is that the global tech investment in AI will slow in 2016. The other is that NVIDIA will fail to gain sales in China. Both have a grain of truth in them already.

The first worry about AI slowing was addressed twice recently. After a rapid and costly buildup, Meta (NASDAQ: META) will end its hiring of world-class talent. The news was broadly covered, but originated in The Wall Street Journal. Meta has over 50 AI researchers and engineers. There are rumors that some of them were hired with a pay package of over $100 million. Meta chief Mark Zuckerberg has made it clear that the future success of his company relies on being one of the premier providers of AI in the world.

There is also worry that big tech is spending money on AI too fast. OpenAI CEO Sam Altman says that AI valuations are a bubble. Tech companies and financial firms are investing hundreds of billions in AI server farms. Altman compared recent tech firm valuations to the run-up in valuations before the crash of the Nasdaq between 2000 and 2002.

The second threat to NVIDIA’s stock price, according to Goldberg, is sales in China. Tariffs were going to make the process difficult. This meant NVIDIA would be locked out of the second-largest AI market in the world. When the tariffs were lifted, NVIDIA was permitted to sell its H20. This is much less powerful than NVIDIA’s flagship products.

NVIDIA has recently lobbied to sell China a more powerful product. However, the Commerce Secretary commented that the chips that China gets from US companies are far inferior to those it sells elsewhere in the world. He said, “We don’t sell them our best stuff, not our second-best stuff, not even our third-best.” After the comments were reported, the Chinese government strongly suggested that its tech companies not buy NVIDIA products at all.

Goldberg may be in a distinct minority, but that does not mean he is wrong.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.