Like Nvidia (NASDAQ:NVDA) shares fall below $120, wide-eyed investors are starting to realize that this stock is actually falling at times. It’s a stunning development because pushing stocks higher has been a profitable strategy for a long time. Still, some stock traders will learn that Nvidia is not invincible. Sure, it’s still a very profitable company, but I’m neutral on NVDA stock until the stock price falls further.
Nvidia designs powerful processors that can be used in artificial intelligence (AI) applications. The company is a darling of the stock market, and as we’ll discuss shortly, analysts generally like Nvidia.
Yet there is actually a Wall Street expert who dares to assign a negative rating to Nvidia stock (we’ll get to that topic in a moment). I won’t go completely bearish as I am neutral and just want to see Nvidia’s market cap and valuation decline somewhat. To me it’s a case of ‘right company, right stock, wrong price’.
Nvidia could conquer another region of the world
In case Nvidia wasn’t already world dominant, the company will reportedly make a big move into the Middle East soon. There, Nvidia has agreed to deploy its AI technology in data centers owned by Qatar-based telecom company Ooredoo.
More specifically, Ooredoo’s data centers in Qatar, Algeria, Tunisia, Oman, Kuwait and the Maldives will have access to robust AI and graphics processing technology, courtesy of Nvidia. Currently, the financial details of the Nvidia-Ooredoo deal are unknown.
This agreement comes at a politically controversial time, to say the least. The US government may not be too happy with the Nvidia-Ooredoo deal due to concerns that Middle Eastern countries could potentially provide an opportunity for China to obtain powerful AI processors.
The US can impose restrictions on the export of advanced AI chips to China, but it cannot control what every company in every country does. So it will be interesting to see if there are any consequences for the Nvidia-Ooredoo deal. For now, however, it’s probably fair to conclude that Nvidia will plant its proverbial flag in the Middle East, gaining access to new revenue streams.
A dissenting voice on Nvidia Stock
To be fair and balanced, I started with good news for Nvidia shareholders. However, not everyone is immediately optimistic about Nvidia shares. There’s a real contrarian voice on Wall Street, as investor and blogger Johnny Zhang went so far as to assign NVDA stock a Strong Sell rating.
Is it even legal to do this in 2024? Zhang may be guilty of stock market blasphemy because Nvidia is seen as an untouchable and invulnerable juggernaut of the red-hot AI hardware market.
On the other hand, I tend to agree with Zhang’s reasons for being bearish on Nvidia stock. Market expectations about Nvidia’s future growth may be “too optimistic, with potential risks such as demand pick-up, competition and geopolitical tensions,” Zhang explained.
Nvidia doesn’t have much “competition” in the niche market for AI-enabled graphics processing units (GPUs) right now, but it’s hard for one company to be king of the hill. In such a lucrative industry, it shouldn’t be too surprising if rival upstarts come out of the woodwork, and they might not all be from the US.
Still, investors probably don’t have to worry too much about Nvidia facing stiff competition for now. Rather, it’s the company’s valuation and overwhelmingly enthusiastic market sentiment that should worry Nvidia’s perma-bulls.
On that subject, a quote from Zhang really resonated with me. “Keep in mind that the Wall Street proponents always encourage you to be most bullish on stocks when they are popular or portrayed as the next big thing in the future,” he warned.
That quote is worth writing down and remembering. Now, Nvidia shares are showing signs of exhaustion, but they’re still trading at 65.6x trailing-12-month earnings (based on total gains of $1.80 over the last four quarters). Meanwhile, the median price-to-earnings ratio for the sector is 23.5x.
Is Nvidia Stock a Buy According to Analysts?
On TipRanks, NVDA ranks as a Strong Buy, based on 38 Buy and three Hold ratings assigned by analysts over the past three months. Nvidia’s average price target is $156.35, implying 32.4% upside potential.
If you’re wondering which analyst to follow if you want to buy and sell NVDA stock, the most profitable analyst covering the stock (over a one-year period) is TD Cowen’s Matt Ramsay, with an average return of 126 .86% per year. assessment and a pass rate of 94%. Click on the image below for more information.
Conclusion: Should You Consider Nvidia Stock?
Nvidia is a niche market giant, and there is no point in denying this. At the same time, I agree with Zhang that the market may be “overly optimistic” about Nvidia’s future growth assumptions.
Many analysts still really like Nvidia, and I don’t blame them. The way I see it, investing in Nvidia could make a lot of sense, but not at its current share price. That’s why I’m neutral on NVDA stock and would like to see it pull back 20% or even 25% before I consider taking a stock position.
Revelation
