John Nowacky
New Street Research analyst, Pierre Ferragu, has downgraded Nvidia Corp. from buy to neutral as he believes the company’s outperformance has stalled. Despite Nvidia’s stock surging 154 percent this year and almost 240 percent the previous year, Ferragu stated that the shares were “getting fully valued.” On Friday, Nvidia’s stock dropped by 1.9 percent while the Nasdaq 100 Index saw a 1 percent increase.
According to Ferragu, any additional upside for Nvidia “will only materialize in a bull case, in which the outlook beyond 2025 increases materially.” However, he expressed doubts about this scenario playing out and therefore lacked conviction. Ferragu did acknowledge that the quality of Nvidia’s franchise remains intact but warned of a potential derating if the current outlook remains unchanged.
While Nvidia has been the second-best performing stock among S&P 500 components this year, its valuation has raised concerns. The stock is currently trading for more than 22 times its estimated revenue in the next 12 months, making it the richest-valued stock in the S&P 500 Index.
New Street Research has set a one-year price target for Nvidia at $135, slightly higher than Friday’s closing price of $125.82.
However, it’s not all bad news for the semiconductor industry. New Street Research sees upside in Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) due to positive growth and valuation trends. In a note, New Street Research stated that AMD and TSMC are “the best names to own in the group, offering strong upside in both in our base and high scenarios.” The research firm also mentioned that other stocks with AI exposure like Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. remain attractively valued.
In summary, while Nvidia’s outperformance has stalled, New Street Research sees potential in AMD and TSMC due to positive growth and valuation trends. Investors should consider diversifying their semiconductor holdings based on these recommendations.
Additional Relevant Facts:
– Nvidia is a leading company in the semiconductor industry, known for its high-performance graphics processing units (GPUs) used in gaming, artificial intelligence (AI), and data centers.
– Advanced Micro Devices Inc. (AMD) is a semiconductor company that competes with Nvidia, particularly in the gaming GPU market.
– Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) is a major semiconductor manufacturing company that manufactures chips for various companies, including Nvidia and AMD.
– The semiconductor industry has experienced significant growth in recent years, driven by increasing demand for AI, gaming, and data center applications.
Identifying Important Questions:
1. Why did Pierre Ferragu downgrade Nvidia from buy to neutral?
2. What factors contribute to the potential upside in AMD and TSMC according to New Street Research?
3. What are the challenges or controversies associated with the semiconductor industry?
Key Challenges or Controversies:
1. Valuation concerns: Nvidia’s current high valuation has raised concerns among analysts, as it is trading for more than 22 times its estimated revenue in the next 12 months.
2. Market competition: Nvidia faces strong competition, particularly from AMD, in the gaming GPU market. The rivalry between these companies can impact their market performance.
Advantages and Disadvantages:
Advantages:
– Nvidia has a strong franchise and has been a top-performing stock in recent years.
– AMD and TSMC are identified as having upside potential based on positive growth and valuation trends.
Disadvantages:
– Nvidia’s stock has been deemed “fully valued” by analysts, suggesting limited potential for further upside.
– The industry faces challenges such as valuation concerns and market competition.
Suggested related links to the main domain:
– Nasdaq
– Advanced Micro Devices Inc. (AMD)
– Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC)
– Broadcom Inc.
– Arista Networks Inc.
– Micron Technology Inc.
