Over the past few years, those who bet on Nvidia (NASDAQ:NVDA) have been proven wrong time and time again. Since launching ChatGPT in November 2022, the AI chipmaker has exceeded expectations every quarter.
That being said, the last month has been quite volatile for the roughly $3 trillion market cap company, with shares falling roughly 5% following its most recent earnings report a few weeks ago.
While no one is doubting NVDA’s past performance, many investors are questioning how much longer the company can sustain its impressive year-over-year growth.
Investor Daniel Schoenberger believes NVDA’s status as one of the top stock performers is under threat.
“Not only are growth rates slowing (which is not surprising, as these extremely high growth rates are unsustainable), but gross margins are also declining,” the investors wrote.
Besides the slowing growth rate, Schoenberger cited other larger trends that don’t bode well for chipmakers.
“NVIDIA is a cyclical business, and the past two years have been an exceptional opportunity for the company (and are unlikely to be repeated in the near future),” the investors wrote, adding that “competition is likely to intensify and enterprise demand to weaken (especially with the risk of the U.S. heading toward a recession).”
For Schoenberger, this creates a mismatch between future earnings and the current stock price: Nvidia trades at 50 times earnings and 57 times free cash flow, which he considers “quite expensive.”
The investor added that this more cautious outlook may be gaining traction on Wall Street, noting that “analysts are turning their backs on Nvidia and starting to lower their expectations for the next few years.” Schonberger thinks this is worth watching closely, as “lower expectations could be in tandem with a shift in sentiment.”
This is an important takeaway for investors, as market moods could set off a chain reaction that could make holding NVIDIA a risky proposition. “Emotionally driven stocks often get hyped in both directions. A bubble peak is often followed by a complete (and undeserved) collapse in the stock price,” the investor summarized.
Overall, Schonberger worries about the risk of a “lost decade” and rates NVDA shares a “sell.” (To watch Schonberger’s track record, click here)
However, while Schonberger claims analysts are cooling their view on Nvidia, the consensus remains a “strong buy.” Of the 42 analyst ratings, 39 are “buys” and only three are “holds.” Moreover, NVDA’s 12-month target price of $153.24 suggests upside potential of up to 29% from current levels. (See NVDA stock price forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investors. The content is for informational purposes only. It is extremely important that you always conduct your own analysis before making any investment.
