Nvidia (NVDA +0.19%) has been a Wall Street darling for quite a while now. And for good reason. The stock has roughly tripled over the past 12 months and is up more than sevenfold since September 2022.
However, not everyone on Wall Street remains enthusiastic about Nvidia. One analyst thinks shares of the GPU maker will plunge close to 28% over the next 12 months.
NASDAQ: NVDA
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A prediction of trouble ahead
D.A. Davidson's Gil Luria set a price target of $620 for Nvidia. That reflects expectations of a steep decline from the current share price of around $864.
Why is Luria so bearish about the chip stock? He predicts potential trouble ahead due to a shift in spending by big technology companies. In particular, Luria thinks major Nvidia customers including Google parent Alphabet, Amazon, Meta Platforms, and Microsoft will eventually have all the GPU capacity they need. He told BNN Bloomberg recently that these tech giants won't continue buying chips for generative AI indefinitely at the rate they've been buying.
All of these companies have developed their own AI chips. For example, Google announced its new Arm-based Axion chip in April. Meta rolled out the next generation of its custom-made MTIA chip last month as well. Amazon offers cloud customers the option of using its cost-effective Inferentia and Trainium2 chips to run AI apps. Microsoft has its Maia and Cobalt AI chips.
Some big Nvidia customers have also turned to Nvidia's top rival, Advanced Micro Devices. Meta and Microsoft are buying AMD's new Instinct MI300X chip. AMD claims the chip is better at AI inference than Nvidia's flagship H100 GPU.
Others warning about Nvidia's risk
Luria is in the minority on Wall Street. Of the 38 analysts surveyed by LSEG so far in May, 21 rate the stock as either a buy or a strong buy. However, he's not alone in sounding a warning about the risks for Nvidia.
Richard Hunter, Interactive Investor's head of markets, has expressed concern that Nvidia could become a victim of inflated expectations. He also thinks tensions with China could hurt Nvidia's share price.
Aswath Damodaran, the NYU finance professor known as the "Dean of Valuation," likes Nvidia's business prospects but not its valuation. His model estimated a fair value for the stock of $436 -- close to half the current share price.
Damodaran posted on X (formerly known as Twitter) that he planned to sell half of his position in Nvidia. He said the stock "was a bridge too far for me" because of its premium price.
Will Nvidia stock plunge?
Could these negative predictions about Nvidia come true? Will the stock plunge 28% over the next 12 months? Maybe.
Nvidia is subject to the laws of supply and demand like any other business is. If the demand for AI chips slows as Luria expects, Nvidia stock will likely pull back. Luria told BNN Bloomberg, "The higher we go this year, the more we're going to fall next year, and that's not in the stock." While he acknowledged that it could take longer than he predicted, Nvidia's current momentum won't last indefinitely.
However, Nvidia has a strong first-mover advantage in the AI chip market. So far, demand remains strong. I wouldn't place a bet that Nvidia's shares will indeed fall 28% anytime soon. If it does happen, though, I think it will be a fantastic buying opportunity.
