After a series of outstanding quarterly reports made Nvidia (NASDAQ:NVDA) the big success story on Wall Street during this AI-themed bull cycle, much was at stake ahead of the chip giant’s recent April quarter readout. The feeling was Nvidia needed to dial in another highly impressive beat-and-raise report showing more growth is in the cards to sustain the momentum.
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No problem, appeared to be the answer offered by the Jensen Huang-led firm. The company once again delivered the goods, drawing plaudits across the board, with the share price doing what it has been doing regularly for a while now – moving up in the aftermath.
So, everyone’s in agreement the good times are going to keep on rolling in for the semi colossus. Or are they?
Offering a contrarian view on NVDA’s prospects, investor James Foord takes an opposite stance, arguing that Nvidia’s days of huge growth might soon come to an end.
“The valuation is as high as it has ever been, while expectations are also sky-high and growth comps moving forward are going to become very challenging,” says Foord. “A great company, but not at these prices.”
While Foord concedes Nvidia just had another excellent quarter, the investor sees “underlying concerns creeping up.” Apart from thinking the growth will be hard to sustain from hereon in, while gross margins increased to 78.4%, going by the guide, these should drop to the mid-70s range over the coming quarters, indicating profit margins “could have also maxed out.”
And while Nvidia has been touting the upcoming release of its next-generation Blackwell GPU architecture as the key that will drive the next leg of growth, Foord thinks the fact its launch comes hot on the heels of the H200’s release could be symptomatic of something much worse.
“Nvidia’s competitors are closing in,” says Foord, “and the company has to continue delivering higher performing chips in order to both stay ahead of competitors and continue providing more revenue and earnings growth.”
Foord points to some evidence of trouble flaring up. Due to soft demand and competition from Huawei, last week the company had to reduce the price of its highest-end chips in China, while the fact AMD’s MI300X accelerators are being used to power Azure’s OpenAI workloads suggests its rival appears to be “gaining ground.”
Bottom-line, says Foord, for the stock to shed 40%-50% of its value, Nvidia doesn’t even need to stop performing well. “It merely has to start performing worse, as was the case with Cisco in the early 2000s,” the investor summed up, referring to the computer networking giant that was once the world’s most valuable company before its growth slowed and the valuation shrunk.
Accordingly, Foord has downgraded his NVDA rating from Hold to Sell. (To watch Foord’s track record, click here)
That, however, stands in sharp contrast to the prevailing mood on Wall Street. While 3 analysts recommend sitting this one out for now, their Hold ratings are countered by 36 Buy recommendations, making the consensus view here a Strong Buy. That said, given the constant gains (~130% year-to-date), the $1,185.29 average target factors in only modest returns of 3% for the coming year. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.