(Bloomberg) — Nvidia Corp.’s (NVDA) breakneck rally since the start of last year has finally run out of room to push higher, at least for now.
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That’s according to New Street Research analyst Pierre Ferragu who downgraded the AI-focused chipmaker to neutral from buy, saying the stock is “getting fully valued” after soaring 156% this year, on top of a gain of almost 240% in 2023. Shares fell as much as 2% on Friday, compared with a gain of nearly 1% for the Nasdaq 100 Index.
Additional upside “will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet,” said Ferragu.
While the “quality of the franchise is nevertheless intact,” there is, “if anything, a risk of derating” should the current outlook remain unchanged, he added.
The downgrade is rare for a company that has become the biggest beneficiary of the artificial intelligence spending boom. Nearly 90% of the analysts tracked by Bloomberg recommend buying the stock.
Nvidia trades at nearly 23 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this measure. It is the second-best performer among S&P 500 components this year, behind Super Micro Computer Inc, another favorite among AI investors. The climb has added $1.9 trillion to Nvidia’s market capitalization, and briefly resulted in it attaining the title of the world’s largest company.
New Street set a one-year price target of $135 for Nvidia, compared with its most recent close of $128.28.
Beyond Nvidia, New Street is positive on both Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co Ltd., citing their growth trends and valuations.
AMD and TSMC are “the best names to own in the group, offering strong upside in both in our base and high scenarios,” New Street said in a note, adding that among other stocks with AI exposure, Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. all “remain attractively valued.”
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