Nvidia Gets Rare Downgrade Over Concerns That Demand Is Normalizing 'In Line With Expectations:' Stock 'Getting Fully Valued'

Nvidia Corp. NVDA has received a rare downgrade from New Street Research, with the analyst citing concerns about the stock’s overvaluation.

What Happened: New Street Research analyst Pierre Ferragu downgraded Nvidia’s stock from buy to neutral, citing that the stock is "getting fully valued" after a remarkable 161% surge this year to date. The stock had previously seen a gain of almost 240% in 2023.

Ferragu expressed doubt about any additional upside, stating that it would only materialize in a bull case, which is not yet certain. He also warned of a potential risk of derating if the current outlook remains unchanged.

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Despite the AI frenzy, Ferragu notes that there is a normalization when it comes to demand for Nvidia's AI-oriented graphics processing units, or GPUs.

"When you listen to clients of Nvidia, we see demand is completely in line with expectations," said Ferragu in an interview with CNBC.

Despite the downgrade, Nvidia remains the second-best performer among S&P 500 components this year, trailing Super Micro Computer Inc., another AI investor favorite. The company’s market capitalization has increased by almost $1.9 trillion, briefly making it the world’s largest company.

Why It Matters: The recent surge in the U.S. stock market, largely driven by the promise of artificial intelligence, has drawn comparisons to the dot-com bubble of the late 1990s.

This has raised concerns about another overvaluation scenario, as the market is currently dominated by a small group of tech giants, with Nvidia among the top performers.

Despite the downgrade, New Street Research is positive on both Advanced Micro Devices Inc. AMD and Taiwan Semiconductor Manufacturing Co Ltd. TSMC, citing their growth trends and valuations.

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

Nvidia CEO Jensen Huang has been offloading the company's stock, selling over $29 million worth of shares amid the 161% surge in 2024.

This rise has led to Nvidia’s market value exceeding $3 trillion, underscoring the company’s dominant position in the tech industry.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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