Nvidia stock may drop 50% to $65 due to cooling AI demand and competition
From NASDAQ MarketSite: 2024-12-22 21:49:26
Nvidia stock (NASDAQ:NVDA) could potentially drop by 50% to around $65 from the current $130 level due to cooling AI demand, competition, and valuation concerns. This could impact revenue growth, margins, and price-to-earnings multiples. However, quantum computing could offer future opportunities.
Nvidia’s sales have surged by close to 3x over the past year, driven by AI demand. Yet, growth may slow with sales potentially declining in the medium term due to diminishing returns on model training and a focus on ROI. This could impact Nvidia’s revenue growth and profitability.
The focus on AI inference could lead to alternative processors challenging Nvidia’s dominance. While Nvidia may remain a leader, rivals like AMD and Intel could gain market share with more efficient chips. Nvidia’s high-end GPUs may be overkill for simpler inference tasks, affecting market demand.
The supply-demand mismatch for Nvidia’s GPUs is easing, with big customers like Microsoft no longer supply-constrained. If demand stabilizes as supply catches up, Nvidia may face pricing pressures or slower sales growth. Revenue is expected to double, but growth may slow to 10% over the next two years.
Nvidia’s margins could decline to around 35% due to increased competition, with chipmakers like AMD and Intel investing heavily in AI. Big tech players like Google and Amazon are also entering the AI chip market, posing a threat to Nvidia’s current growth rates and margins. Consider diversifying with Intel stock. The Trefis High Quality (HQ) Portfolio outperformed the S&P 500, with less volatility. HQ Portfolio stocks provided better returns with less risk. Concerns about Nvidia stock include potential changes in the AI landscape. A slower pace of rate cuts by central bankers could impact high multiple tech stocks like Nvidia. A decline in Nvidia stock to $65 per share is possible if its P/E ratio shrinks from 44x to 25x.
In December 2024, Nvidia’s monthly return was -7%, year-to-date return was 160%, and total return from 2017-2024 was 1783%. In comparison, the S&P 500 had a monthly return of -3%, year-to-date return of 23%, and total return from 2017-2024 was 162%. The Trefis Reinforced Value Portfolio had a monthly return of -3%, year-to-date return of 21%, and total return from 2017-2024 was 800%.
Read more at NASDAQ MarketSite: How Nvidia Stock Could Drop 50%