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Nvidia stock has gained too much for some investors this year.
I-Hwa Cheng/Bloomberg
Nvidia
Equities have benefited from the artificial intelligence craze, but it’s fair to wonder if equities have come too far, too fast. The answer could very well be yes.
Nvidia
(ticker: NVDA) stock fell 1.7% to $430.45 on Wednesday, but has nearly tripled this year as the launch of ChatGPT late last year sparked a rally in everything relates to AI. The euphoria gathered momentum late last month when Nvidia said its fiscal second-quarter sales were expected to be around $11 billion, beating Wall Street’s forecast of $7 billion, as chips enabling artificial intelligence applications have seen an increase in demand.
Stocks, especially those as big as Nvidia, rarely triple in such a short time, and Lynx analyst KC Rajkumar said Wednesday that “investor expectations for NVDA have reached frothy levels.” . He set a target of $360 for the stock price, implying a 16% loss from the current level of $430.45. Wall Street analysts, on average, see the stock rising, to $445.38, according to FactSet estimates.
Rajkumar models a 10% revenue gain for Nvidia’s data center sales in fiscal year 2025 versus Street expectations of 36.8%. Indeed, Nvidia has already nearly doubled its data center business in the current year, while its ability to set high prices for products in the future is threatened by new entrants into the data center sphere. ‘AI, which can lower costs.
The company doesn’t have an official rating or recommendation on the stock, but Rajkumar said Barrons that if he accepts the advances in AI made by Nvidia, “at current levels of investor expectations, we are bearish on the stock.”
He is not the only one. In an interview with Barrons, NYU finance professor Aswath Damodaran suggested it might be time to cash in. ARK Invest’s Cathie Wood also reported this month that the company sold around 20,000 shares of Nvidia (NVDA) worth around $8 million.
The stock is certainly expensive. Nvidia is trading at 52.3 times earnings estimates for the next 12 months, beating its five-year average of 39.4. Time will tell whether or not it’s worth that premium valuation.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.