As Nvidia (NASDAQ:NVDA) stock dips under $120, wide-eyed investors are starting to realize that this stock actually goes down sometimes. It’s a stunning development because chasing the stock higher has been a profitable strategy for a long. Yet, some stock traders will learn that Nvidia isn’t invincible. Sure, it’s still a highly profitable company, but I am neutral on NVDA stock until the share price pulls back more.
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 soon, analysts are generally enamored with Nvidia.
Yet, there’s 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 full-on bearish, as I’m neutral and only want to see Nvidia’s market capitalization and valuation come down 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-dominating, the company is reportedly making a big move in the Middle East soon. There, Nvidia has agreed to deploy its AI technology in data centers owned by Qatar-based telecom firm 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 agreement are unknown.
This agreement comes at a politically contentious time, to say the least. The U.S. government might not be too happy about the Nvidia-Ooredoo deal due to concerns that Middle Eastern countries could potentially provide an avenue for China to get high-powered AI processors.
The U.S. can place restrictions on its exports of sophisticated AI chips to China, but it can’t control what every company does in every country. So, it will be interesting to see if there are any repercussions from the arrangement between Nvidia and Ooredoo. For the time being, though, it’s probably reasonable to conclude that Nvidia will plant its proverbial flag in the Middle East and thereby gain access to new revenue streams.
A Dissenting Voice on Nvidia Stock
To be fair and balanced, I started off with a piece of good news for Nvidia’s shareholders. However, not everyone is straight-up bullish about Nvidia stock. There’s a true contrarian voice out there on Wall Street, as investor and blogger Johnny Zhang actually went so far as to assign NVDA shares a Strong Sell rating.
Is it even legal to do this in 2024? Zhang may be guilty of stock-market blasphemy, as Nvidia is viewed as an unassailable and invulnerable juggernaut of the white-hot AI hardware market.
On the other hand, I tend to concur with Zhang’s reasons for leaning bearish on Nvidia stock. The market’s expectations about Nvidia’s future growth may be “overly optimistic, with potential risks including pull-forward demand, competition, and geopolitical tensions,” Zhang explained.
Nvidia doesn’t currently have much “competition” in the niche market for AI-compatible graphics processing units (GPUs), but it’s hard for one company to be the 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 U.S.
Still, for the time being, investors probably don’t need to be overly concerned about Nvidia facing stiff competition. Rather, it’s the company’s valuation and the overwhelmingly enthusiastic market sentiment that ought to concern the Nvidia perma-bulls.
On that topic, a quote from Zhang really resonated with me. “Keep in mind… the Wall Street touts always encourage you to be most bullish on stocks when they are hot or portrayed as the next big thing in the future,” he warned.
That quote is worth writing down and remembering. Now, Nvidia stock is showing signs of exhaustion, but it still trades at 65.6x trailing 12-month earnings (based on total earnings of $1.80 during the past four quarters). Meanwhile, the sector median P/E ratio is 23.5x.
Is Nvidia Stock a Buy, According to Analysts?
On TipRanks, NVDA comes in as a Strong Buy based on 38 Buys and three Hold ratings assigned by analysts in the past three months. The average Nvidia stock price target is $156.35, implying 32.4% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell NVDA stock, the most profitable analyst covering the stock (on a one-year timeframe) is Matt Ramsay of TD Cowen, with an average return of 126.86% per rating and a 94% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Nvidia Stock?
Nvidia is a niche-market juggernaut, and there’s no point in trying to deny this. At the same time, I agree with Zhang that the market may be “overly optimistic” regarding Nvidia’s future growth assumptions.
Many analysts still like Nvidia a lot, and I don’t blame them. As I see it, investing in Nvidia could make a lot of sense, but not at the current share price. Therefore, I am neutral on NVDA stock and would want to see it pull back 20% or even 25% before considering taking a share position.
