Nvidia (NASDAQ), a leading player in the AI chip market, has seen substantial success in recent years, largely driven by the rise of AI technologies like ChatGPT.
However, recent volatility has raised concerns among investors about the company’s future performance.
Following a strong performance since the launch of ChatGPT in November 2022, Nvidia has frequently exceeded expectations. Despite this, Nvidia’s stock has experienced fluctuations, with a notable 5% dip following its latest earnings report.
Daniel Schönberger, an investor with a cautious outlook, suggests that Nvidia’s impressive growth trajectory might face challenges. Schönberger highlights two main issues: a slowdown in growth rates and a decline in gross margins. He argues that such high growth rates are unsustainable and that Nvidia’s current valuation, trading at 50 times earnings and 57 times free cash flow, appears expensive.
Schönberger also points to broader trends that may affect Nvidia’s future performance. He notes that the company operates in a cyclical industry and that the exceptional conditions of the past two years might not persist. Additionally, he anticipates increased competition and a potential decline in demand, exacerbated by economic uncertainties, including the risk of a U.S. recession.
Despite these concerns, Schönberger’s view is not universally shared. The consensus among analysts remains positive, with Nvidia holding a Strong Buy rating. Out of 42 analyst ratings, 39 are Buy recommendations, and only 3 are Holds. Analysts’ 12-month price target for Nvidia suggests a potential upside of approximately 29% from current levels.
The recent volatility in Nvidia’s stock is partly attributed to shifting market sentiment. After a significant drop in late August and early September, the stock surged nearly 16% last week. Bernstein analysts have described Nvidia as a prime investment for AI exposure, while Bank of America has suggested that the recent dip offers a favorable buying opportunity.
Technically, Nvidia’s stock has been trading within a descending channel since reaching a record high in late June. The recent rally has brought the stock closer to the upper trendline of this channel. Key resistance levels to watch include around $126, with further potential upside reaching $166 if the stock breaks out of the channel.
On the downside, support levels are observed around $97 and $75. If the stock falls below these levels, it could prompt further declines, potentially attracting bargain hunters.
Tip Ranks and Investopedia contributed to this report.
