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The beleaguered AI deal is hard to miss.
September’s slump has already hit investors hard, underscoring warnings that this will be a historically tough month for stocks. Big technology stocks are leading the market sell-off, raising questions about what will drive stocks higher as investors move to other sectors. And there are growing threats of regulation, among other looming challenges.
But “near-term headwinds” is another way of saying “attractive buying opportunity” for AI bulls and analysts who share their outlook.
The reported escalation of the Justice Department’s investigation into Nvidia (NVDA) this week is the latest snag in an uncertain landscape. (The company said it has been in contact with the Justice Department but has not received any reported DOJ subpoenas for its business practices surrounding AI processors.)
But what’s clear from the still-high prices is that Wall Street isn’t debating whether AI technology and its biggest companies will deliver breakthroughs — that belief is already set in stone. Instead, every obstacle to potential gains has led to mere nit-picking negotiations over price.
Bank of America analysts on Wednesday reiterated their buy recommendation for AI champion Nvidia, characterizing its short-term problems and roadblocks as a possible temporary pullback in the stock. The stock’s woes, from superchip delays to questions about the huge costs of AI investments to a tough reputation this season, have been abundantly clear.
But what one person considers a toxic trait can be another person’s green light. The report lists a $165 target price for Nvidia, which would be more than 50% upside from Thursday’s closing price. And the way Nvidia is litigating over what the subpoena calls a “civil investigative demand” makes it clear that this bullish company is saying, “If you can’t get me through my intense regulatory scrutiny, you don’t deserve me at the highest price.”
One reason it’s difficult to predict how the Justice Department’s efforts will play out is that it’s early days for a new presidential administration, there are numerous other ongoing lawsuits targeting the tech industry with uncertain outcomes, and there’s a history of inaction.
As for Nvidia, antitrust regulators are looking to see whether the company is using its market power to lock customers into its business. Complicating matters, some of its buyers own or are developing their own custom chips. And, analysts point out, Nvidia’s cloud customers have the resources and sophistication to source AI infrastructure from multiple vendors.
The story continues
Analysts at Bank of America acknowledged that increased government scrutiny of Nvidia’s leading chip position poses risks, but are taking a wait-and-see approach: “Until more details become available, we see no material impact to NVDA’s fundamental business opportunity.”
Last week in this newsletter, we asked whether AI trading was entering a new period of decline, or whether its recent troubles were a blip. It’s easy to imagine that valuations have fallen, but that’s only served to provide a big lure for people to get in.
Hamza Shaban is a markets and economics reporter for Yahoo Finance. Follow Hamza at @hshaban.
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