Nvidia Soars Despite Downgrade on High Valuation

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Nvidia Corp. has seen a remarkable stock uptrend since the beginning of last year, but according to Pierre Ferragu, an analyst at New Street Research, this rally has now reached its peak. Ferragu’s analysis, as reported by Bloomberg, suggests that Nvidia’s stock has become “fully valued,” leading him to downgrade the stock from a buy rating to a neutral rating.

Nvidia’s stock has experienced impressive growth, surging 154% this year following a 240% increase in 2023. Despite this, Ferragu’s downgrade indicates that the stock’s current valuation has reached a level where further substantial gains may be difficult to achieve. On Friday, Nvidia’s shares fell by 1.9%, while the Nasdaq 100 Index saw a 1% gain.

Ferragu noted that additional significant upsides for Nvidia would only become evident in a particularly optimistic scenario, where the outlook beyond 2025 improves significantly—a scenario he is not yet convinced will materialize. He emphasized that while the quality of Nvidia’s franchise remains intact, there is a risk of the stock being re-rated, and thus the current outlook remains unchanged.

In 2024, Nvidia Corp. has been one of the top performers among S&P 500 companies, second only to Super Micro Computer Inc., another prominent stock in the chip and AI sectors. Nvidia’s stock surge has added an impressive $1.9 trillion to the company’s market value, briefly making Nvidia the world’s largest company.

Downgrading a stock like Nvidia, which is a key player in the artificial intelligence boom, is a rare occurrence. Bloomberg’s tracking shows that 90% of analysts still have a buy rating on Nvidia, despite concerns about its valuation.

New Street Research, in their note, suggested that other stocks such as AMD and TSMC offer strong upsides in both base and optimistic scenarios. They also highlighted that stocks like Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. remain attractively valued.

In summary, while Nvidia has enjoyed a significant stock uptrend, the current valuation and outlook suggest that it may have reached a plateau. Investors and analysts are now looking at other potential opportunities within the chip and AI sectors, with companies like AMD, TSMC, Broadcom, Arista Networks, and Micron Technology being highlighted as attractive options.