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Analyst Pierre Ferragu believes that the valuation of NVIDIA is worrying.
On Friday, July 5, Eastern Time, analyst Pierre Ferragu from New Street Research issued a warning on NVIDIA's stock. He downgraded the stock to "neutral" and believed that the stock's upside potential was limited unless it was in a bull market.
In his report, he wrote:
"We are downgrading the stock to neutral today because there is only upside space in bull markets, notably from 2025 onwards when the outlook is significantly brighter and we are not sure this will materialise at this point."
He also mentioned that the revenue model showed that NVIDIA's growth rate would slow to a moderate level, and GPU revenue is expected to grow by only 35% next year.
Based on NVIDIA's price-earnings ratio in 2019 and early 2020 (35 times), Ferragu set a target stock price of $135, which is 5% higher than Wednesday's closing price. Ferragu further pointed out that NVIDIA's P/E ratio may fall, as the current stock price is 40 times the expected earnings in the next 12 months. When the growth slowed to 10% in 2019, the P/E ratio fell to 20 times.
However, he believes that the fundamental quality of the company is still sound, and he will consider buying it again when NVIDIA's stock price continues to be low.
Currently, there are very few analysts on Wall Street who hold negative views on NVIDIA. According to TipRanks.com, among 41 analysts, 38 recommended buying NVIDIA's stock, 3 suggested holding, and no one suggested selling. Only DZ Bank in Germany downgraded NVIDIA's rating from buy to hold in May of this year.
Despite the overwhelmingly positive views of almost all analysts on NVIDIA, New Street Research is a rare analyst who is bearish on NVIDIA.
Thanks to the launch of ChatGPT by the end of 2022, which triggered a craze in AI technology, NVIDIA's stock price has risen by 159% so far this year. However, in recent weeks, NVIDIA's stock price has fallen as some investors choose to lock in profits. Overnight on Friday, NVIDIA's stock price fell more than 2.02% during early trading in the US, hitting a daily low of $125.68.
