Nvidia stock gets a rare downgrade post 154% returns, valuation concerns remain

Nvidia Corp. stock uptrend rally since the beginning of last year has finally run out of fuel to push further, according to Pierre Ferragu, an analyst at New Street Research, reported Bloomberg.

New Street Research's Ferragu downgraded Nvidia's stock to a neutral rating from a buy rating stating reasons for the stock “getting fully valued”. The chipmaking giant's shares surged 154 per cent this year over a gain of 240 per cent in the previous year 2023.

Nvidia's shares fell 1.9 per cent on Friday's trading session, whereas the Nasdaq 100 Index gained 1 per cent as of Friday.

“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,” Bloomberg wrote quoting Ferragu's additional upsides.

Ferragu also said that the franchise's quality is intact, but if there is anything, a risk of derating, the current outlook shall remain unchanged.

In 2024, Nvidia Corp. is the second-best performer among the S&P 500 companies this year, falling behind Super Micro Computer Inc., another popular stock amongst chip and AI investors.

Nvidia's stock surge added $1.9 trillion to the chipmaker's market value. This climb resulted in Nvidia becoming the world's largest company for a brief while.

Analysts downgrading a stock like Nvidia which is a part of the artificial intelligence boom is a rare occurrence in the market. Bloomberg reported tracking 90 per cent of analysts having a buy rating on the stock, despite valuations being a concern for most.

The chipmaker stock trades more than 22 times the estimated revenue for the next year, making it the most expensive stock to purchase in the S&P 500 Index, as per the measure.

Nvidia is to ship over 1 million of its new H20 product to the Chinese market, and with each one said to cost around $12,000 and $13,000 apiece, that would deliver over $12 billion to the chipmaker, The Register reported quoting a SemiAnalysis report. Nvidia officially declined to comment about the deal.

New Street Research set a one-year target price on Nvidia Corp. at $135, compared to $125.82, after Friday's close. The analyst firm is positive on stocks like Advanced Micro Devices Inc. (AMD), and Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), because of good valuation and growth trends.

The best names to own in the group are AMD and TSMC, offering strong upsides in both base and high scenarios, said New Street Research on a note. Stocks like Broadcom Inc., Arista Networks Inc. and Micron Technology Inc. all “remain attractively valued," they said.