Nvidia’s Stock Skyrockets Amid Dow Inclusion, But One Investor Warns to Sell
Nvidia (NASDAQ:NVDA) is experiencing a surge in momentum, propelled by a series of favorable developments. This leading AI chip manufacturer is currently dominating the data center market, and its latest Blackwell chipsets are already sold out for the upcoming year, indicating strong demand.
Upcoming Dow Jones Inclusion and Its Impact
Nvidia’s anticipated addition to the Dow Jones Industrial Average (DJIA) this Friday could further boost its stock price. Index-tracking funds will need to adjust their portfolios to include NVDA shares, which may lead to an increase in the stock’s value.
A Contrarian Perspective on Future Growth
Despite the optimism surrounding Nvidia, prominent investor known as The Value Portfolio believes this is a prime time to realize profits. The 5-star investor, ranked in the top 1% among stock analysts, expressed concerns about Nvidia’s valuation in light of its growth potential.
According to The Value Portfolio, Nvidia would have to maintain an annual revenue growth rate of 55% for the next six years—an ambitious target for a company currently valued at $3.4 trillion—to justify higher stock prices.
Challenges Ahead for Nvidia
Several factors contribute to this cautious outlook. Firstly, Advanced Micro Devices (AMD) could begin to chip away at Nvidia’s market share. The Value Portfolio highlights that Meta, one of Nvidia’s largest clients, has recently started using open-source models on AMD servers. This trend raises concerns about Nvidia’s competitive edge and positions AMD GPUs as a more affordable option.
Additionally, the investor points out that a significant portion of Nvidia’s revenue depends on a small number of clients, chiefly other major tech corporations. This heavy reliance poses a risk; these clients might eventually create similar capabilities in-house, heightening competition.
“The competition from its largest customers, who interact directly with end products unlike Nvidia, could severely threaten Nvidia’s profit margins,” the investor noted.
A Divergent View on Stock Ratings
In light of these concerns, The Value Portfolio has assigned NVDA shares a Strong Sell rating and advises investors to take advantage of the current price increase. In contrast, the broader sentiment on Wall Street reflects a different outlook. With 39 Buy ratings and just 3 Holds, NVDA has a consensus Strong Buy rating, and analysts project an average price target of $153.86 over the next year, indicative of a potential 13% gain.
Disclaimer: The views expressed in this article are solely those of the featured investor. The content is intended for informational purposes only. Conduct your analysis before making any investment decisions.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.