Seaport Global Securities analyst Jay Goldberg downgraded NVIDIA (NASDAQ: NVDA) three months ago. He put a “sell” on the stock and a price target of $100. The idea is not so wild because NVIDIA traded there on April 21. This was just four months ago.
Key Points
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China Is A Challenge
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An AI Tech Bubble
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NVIDIA will announce earnings this week. Even if the company reports disappointing earnings, the stock will not immediately reset to $100 from its current price of $177. However, there are two cases against NVIDIA’s current valuation. The first is that the global tech investment in AI will slow in 2016. The other is that NVIDIA will fail to gain sales in China. Both have a grain of truth in them already.
The first worry about AI slowing was addressed twice recently. After a rapid and costly buildup, Meta (
There is also worry that big tech is spending money on AI too fast. OpenAI CEO Sam Altman says that AI valuations are a bubble. Tech companies and financial firms are investing hundreds of billions in AI server farms. Altman compared recent tech firm valuations to the run-up in valuations before the crash of the Nasdaq between 2000 and 2002.
The second threat to NVIDIA’s stock price, according to Goldberg, is sales in China. Tariffs were going to make the process difficult. This meant NVIDIA would be locked out of the second-largest AI market in the world. When the tariffs were lifted, NVIDIA was permitted to sell its H20. This is much less powerful than NVIDIA’s flagship products.
NVIDIA has recently lobbied to sell China a more powerful product. However, the Commerce Secretary commented that the chips that China gets from US companies are far inferior to those it sells elsewhere in the world. He said, “We don’t sell them our best stuff, not our second-best stuff, not even our third-best.” After the comments were reported, the Chinese government strongly suggested that its tech companies not buy NVIDIA products at all.
Goldberg may be in a distinct minority, but that does not mean he is wrong.
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