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Nvidia stock has gained too much for some investors this year.
I-Hwa Cheng/Bloomberg
Nvidia
stock has been a beneficiary of the artificial intelligence craze, but it’s fair to ask if shares have come too, far, too fast. The answer might very well be yes.
Nvidia
‘s (ticker: NVDA) stock dropped 1.7% to $430.45 on Wednesday, but has nearly tripled this year as the launch of ChatGPT late last year triggered a rally in everything AI related. The euphoria gained more momentum late last month when Nvidia said its fiscal second-quarter sales are expected to be about $11 billion, surpassing Wall Street’s projection of $7 billion as chips that enable artificial intelligence applications experienced a surge in demand.
Stock, particularly those as large as Nvidia, rarely triple in such a short period of time, and Lynx analysts KC Rajkumar on Wednesday said “investor expectations of NVDA have reached frothy levels.” He set a $360 target for the stock price, implying a 16% loss from the current level of $430.45. Wall Street analysts, on average, see the shares moving higher, to $445.38, according to estimates on FactSet.
Rajkumar models a 10% revenue gain for Nvidia’s data center sales in the fiscal year 2025 versus the Street’s expectations for 36.8%. That’s because Nvidia has already nearly doubled its data center biz in the current year, while its ability to price products highly in the future is threatened by the new entrants into the AI sphere, which can bring the costs down.
The firm doesn’t have an official rating or recommendation on the stock, but Rajkumar told Barron’s that while he accepts the AI strides made by Nvidia, “at current levels of investor expectations, we are bearish on the stock.”
He’s not the only one. In an interview with Barron’s, Aswath Damodaran, a professor of finance at NYU, suggested it may be time to cash out. ARK Invest’s Cathie Wood also reported this month that the firm sold about 20,000 shares of Nvidia (NVDA) worth some $8 million.
The stock certainly is expensive. Nvidia trades at 52.3 times earnings estimates for the next 12 months, surpassing its five-year average of 39.4. Time will tell whether it’s worth that premium valuation or not.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
