Is Nvidia Losing Its Edge in the AI Chip Market?

New Street Research’s Pierre Ferragu lowered Nvidia’s rating from “buy” to “neutral” because the company’s shares are now fully priced and there is a chance that the price could drop, even though Nvidia still has a strong position in the AI chip market.

Pierre Ferragu, an expert at New Street Research, says that Nvidia Corp.’s outperformance has stopped, so he has changed his recommendation from “buy” to “neutral” for the AI-focused chipmaker.

Ferragu said that he thought Nvidia shares were “getting fully valued” after going up 154% this year and almost 240% the year before. The Nasdaq 100 Index went up by 1% on Friday, while Nvidia fell 1.9%.

He also said that even though the “quality of the franchise is still intact,” there is “if anything, a risk of derating” if things keep going the way they are.

Even though Nvidia has been the second-best performing stock in the S&P 500 this year, after Super Micro Computer Inc., its price has caused red flags. Its market value rose by almost $1.9 trillion, making it the world’s biggest company for a short time. This stock’s run doesn’t come cheap.

Bloomberg data shows that Nvidia is selling for more than 22 times what it thinks it will make in the next 12 months. This makes it the most valuable stock in the S&P 500 Index. Last Friday, Nvidia stock closed at $125.82. New Street set a price goal for the company for the next year at $135.

Optimism for AMD and TSMC

New Street Research is also optimistic about Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co. Ltd. for the same reason: growth and price trends that are going in the right direction.

New Street said in a note that among the stocks with AI exposure, Broadcom Inc., Arista Networks Inc., and Micron Technology Inc. all “remain attractively valued.” “TSMC and AMD are the best names to own in the group, offering strong upside in both our base and high scenarios,” the company said.