A recent analysis shows that only one Wall Street analyst rates Nvidia Corp. (NASDAQ: NVDA | NVDA Price Prediction) as a Sell. Bloomberg reports that 73 analysts have a Buy rating on the stock and another six rate it Hold. This optimism is astonishing for a stock that is up 1,426% in the past five years.
The news service reports that the Nvidia bear, Jay Goldberg, a senior analyst at Seaport Global Securities, believes “There’s a lot more that can go wrong with Nvidia than can go right.” His belief is based on the fact that Nvidia has a small number of huge customers that make up much of its revenue. These include Microsoft and Amazon, which say they will spend tens of billions of dollars on artificial intelligence this year. That primarily includes the cost of infrastructure, which includes electricity, and the cost of Nvidia chips.
Why Nvidia Could Crash
Goldberg’s view of the future has legs. Consider what has become known as “round-tripping” of cash. Nvidia invests in a company and then gets much of that investment back in chip sales. For example, Nvidia’s $100 billion investment in OpenAI, the industry leader. Some of that money is “recycled” to Nvidia in chip sales, AKA revenue. One decision of the Financial Accounting Standards Board (FASB) or U.S. Securities and Exchange Commission (SEC) could stop this questionable practice. Nvidia’s top line could take a massive hit.
Another argument is that AI will never be a huge commercial success. The greatest technology advance in history may produce little money. Most AI users today rely on free versions. For AI to be considered a success, companies like Microsoft, Meta, and Amazon must make hundreds of billions of dollars on enterprise applications. It is much too early in AI’s evolution to say whether that will happen.
Next, Nvidia has competition, although its bulls think those rivals will always be small. Advanced Micro Devices Inc. (NASDAQ: AMD) leads these competitors. Its stock is up 119% this year. Qualcomm Inc. (NASDAQ: QCOM) recently announced an AI chip, and its stock rose 20% in a day. For Nvidia to keep its valuation, it must stay well ahead of these companies in revenue.
Finally, there is the Chinese market. By most estimates, it is the only country close to the United States in AI development. China has blocked Nvidia chip sales, saying it has its own advanced chips, which can be improved. If Nvidia stays locked out of the market, it loses out on potentially huge sales. If Chinese chips become truly competitive, they could be direct competition to Nvidia beyond China and the U.S.
Goldberg has a case.
Top Wall Street Analysts Predict Which Three Tech Stocks Will Surge 200%
Top Gaining Stocks
Top Losing Stocks