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'They're not going to keep buying this': 3 Wall Street analysts explain why Nvidia's best days are behind it

Jennifer Sor   

'They're not going to keep buying this': 3 Wall Street analysts explain why Nvidia's best days are behind it
  • Nvidia's best days in the stock market may soon be behind it, three Wall Street analysts say.
  • They warn that the chipmaker's rally could be disrupted by waning demand and too-lofty expectations.

Nvidia's best days are probably behind it — and the stock's meteoric rise amid the artificial intelligence craze will probably start to stumble this year, according to several Wall Street analysts.

That bearishness comes amid a stellar year so far for Nvidia, with the Jensen Huang-led firm crushing earnings estimates quarter after quarter. The company is now worth more than Alphabet and Amazon, and it just dethroned Tesla as the top stock pick among retail investors.

But the chipmaker's monster-sized gains could soon come to an end, according to Gil Luria, analyst at DA Davidson. He's calling for as much as a 20% slide in Nvidia stock by the end of the year — joining a handful of other strategists who are skeptical of Nvidia's dizzying stock market valuation.

Nvidia is unlikely to keep up its rapid pace of growth, as companies investing in AI are bound to tap out eventually, Luria said, speaking recently to BNN Bloomberg. In a note, he assigned a "hold" rating to the stock and a price target of $620, the lowest estimate on Wall Street.

"A lot of its big customers … are stocking up on its GPU products," Luria said, pointing to Nvidia's biggest AI chip buyers, like Microsoft and Amazon. "But as they get to the capacity that they need to have, they're not going to keep buying this for years to come, which is what current Nvidia estimates imply."

Nvidia is expected to see earnings per share soar to $24.75 for the 12-month period through first quarter 2025, according to Bloomberg data. That's nearly double the adjusted $13 EPS it posted the prior year.

DA Davidson also expects demand for Nvidia's products to decline by 2026.

"The higher we go this year, the more we're going to fall next year," Luria warned.

Other commentators have cast warnings over Nvidia's sky-high valuation. Deutsche Bank maintained its "hold" rating on the stock in a recent note, pointing to the already-lofty price of the chipmaker. Analysts assigned a price target of $850 a share, implying a 5% downside from the stock's current levels.

"We remained impressed with NVDA's pace of innovation and continue to view the company as the undisputed AI leader, but also believe this view remains quite well known (see impressive rally ytd) and adequately reflected in its already premium valuation," analysts at the German bank said in a March 18 note.

Nvidia also faces risks from the huge amount of competition in the AI space. No company is close to dominating the market as much as Nvidia has, but other chipmakers like Microsoft and Amazon are certainly "making a run for it," according to Brian Colello, an equity strategist at Morningstar.

"The cloud companies might just simply see how much they're spending on Nvidia GPUs and then … try to build these chips in-house to run specific AI workloads," Colello told Business Insider in an interview. "Nvidia has massive operating margins and best-of-breed profitability. So that does give a lot of companies incentives for trying to enter the fray."

Nvidia stock could also get hit if the economy were to enter a slowdown, Colello speculated. If customers like Microsoft pull back on GPU spending, that could spell trouble for Nvidia, given that investors already have high expectations baked into the stock.

Morningstar assigned a three-star, or a neutral rating, to the stock, with a price target of $910. That implies the stock will trade mostly flat for the rest of the year, with Nvidia shares trading around $900 this week.

Nvidia bears are certainly in the minority as the chipmaker continues its rally, with shares up 86% from levels at the start of the year. Investors will have their eye on the firm's upcoming earnings report set to roll out May 22, with expectations for the company to pull $5.13 earnings-per-share, Nasdaq data shows.

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