From Nasdaq: 2024-11-19 22:51:20

Nvidia stock (NASDAQ:NVDA) has surged over 180% year-to-date in the AI boom, trading at over 80x trailing earnings and 50x projected FY’25 earnings. The stock’s remarkable run may reverse, possibly falling by over 50% due to elevated multiples, market assumptions, economic uncertainty, and potential inflation risks. Nvidia remains a volatile stock with significant upside and downside potential.

Nvidia stock has been highly volatile, with significant fluctuations in returns over the past four years compared to the S&P 500. While the Trefis High Quality Portfolio outperformed the benchmark index each year, Nvidia experienced a roller-coaster ride in returns. The stock’s performance could be impacted by cooling growth rates, weak economics in the AI ecosystem, and potential macroeconomic factors.

Nvidia’s rapid revenue growth may slow down significantly, potentially even flatlining, due to weak market economics and high capital spending with low returns in the AI industry. The company’s growth could face challenges from supply constraints, execution issues, and dependencies on suppliers like TSMC. Margins could also be at risk of declining to around 35% from the current 49% due to various factors affecting Nvidia’s profitability. Competition in the chipmaking industry is heating up as AMD and Intel invest in AI chips to challenge Nvidia. AMD’s Instinct MI300X chip is said to outperform Nvidia’s current chips, prompting IBM to collaborate with AMD for cloud offerings. Google is also developing its own AI chips, posing a threat to Nvidia’s dominance.

The increased competition could impact Nvidia’s valuation, with potential revenue growth of 30% by 2027 but margins declining to 35%. This could result in a 10% decline in net income, leading to a possible 50% drop in Nvidia stock to $65 per share. Investors may need to reassess Nvidia’s long-term growth prospects.

Despite the risks, investing in NVDA stock has shown significant returns, with a 5246% total return from 2017 to 2024. The Trefis Reinforced Value Portfolio has also delivered strong performance, outperforming the S&P 500 with a 780% return. Consider the Trefis High Quality Portfolio for consistent outperformance.



Read more at Nasdaq: Could Nvidia Stock Crash 50%?