On Friday, New Street Research adjusted its stance on NVIDIA (NASDAQ:NVDA), shifting the rating from Buy to Neutral with a price target (PT) of $135.00. The firm's analysis suggests that while consensus expectations align with their previously stated projections for a 35% increase in GPU revenues by 2025, the potential for significant further growth appears limited.
The report highlights concerns over the outlook for revenue growth, which is anticipated to decelerate to mid-teens percentages. This slowdown could be exacerbated by reduced capital expenditures in hyperscale computing and increased market share by competitors such as ASICs and AMD (NASDAQ:AMD).
The current valuation of NVIDIA's stock is a focal point of the downgrade. The stock's trading multiple is 40 times the next twelve months' (NTM) earnings per share (EPS), which is notably high compared to historical levels. For instance, the multiple dropped to 20 times when growth prospects slowed to 10% in 2019, before rebounding to 35 times. New Street Research has set the valuation at 35 times the EPS, mirroring the multiples seen in late 2019 and early 2020.
In terms of future earnings, the firm anticipates $4.1 EPS by 2027, which underpins a target price of $143 in 2026. However, this suggests only a marginal upside over the next two years. The firm's one-year target price has been established at $135, indicating caution over NVIDIA's short-term growth potential. Despite the downgrade, the firm acknowledges the enduring strength of NVIDIA's business.
The analyst's commentary concludes that while the quality of NVIDIA's franchise remains strong, the firm would reconsider purchasing shares only if there was a prolonged period of weakness in the stock price.
In other recent news, Nvidia (NASDAQ:NVDA), a key player in the artificial intelligence technology sector, has been in the spotlight. The company's shareholders recently approved several significant proposals at the 2024 Annual Meeting, including the election of all twelve director nominees, advisory approval of executive compensation, and ratification of the company's independent registered accounting firm, PricewaterhouseCoopers LLP. Furthermore, a proposal to amend the company's voting standards was also given the green light.
In a contrasting development, Nvidia is set to face antitrust charges in France for alleged anti-competitive behavior, marking the first time the company will face such charges. This follows investigations that included dawn raids focusing on Nvidia.
Nvidia also briefly surpassed Microsoft (NASDAQ:MSFT) in market value, with its shares climbing up to 27% and raising its market value to $3.34 trillion. However, this shift was short-lived due to profit-taking activities and concerns over its high valuation. The firm's shares have seen a surge in demand, leading to increased regulatory scrutiny in various jurisdictions.
Cantor Fitzgerald has maintained its Overweight rating on Nvidia and increased the stock's price target. This assessment is based on Nvidia's role in driving technological innovation and reducing computing costs.
Lastly, the tech sector, led by companies like Nvidia, has driven a dynamic first half in 2024 for global markets. Nvidia has seen a staggering 150% increase, contributing significantly to the tech sector's overall 30% leap.
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