Analyst sees 15% downside risk for Nvidia stock as AI hits ‘trough of disillusionment’

DA Davidson analysts assert that NVIDIA (NVDA) plays a crucial role as a leader in accelerated computing, projecting an impressive 20% compound annual growth rate (CAGR) from 2022 levels across cycles.

Despite recognizing NVDA’s dominance in various categories, analysts express skepticism about the likelihood of consensus expectations for the out-years materializing.

They anticipate a reversion to the trend line within the next 2-6 quarters, citing vulnerability for NVDA as the hype around artificial intelligence (AI) approaches the “trough of disillusionment.”

“While we continue to believe that generative AI is the most important transformative technology since the Internet, we do not expect the same level of investment we saw in 2023 continuing beyond 2024,” analysts said in a note.

As a result, analysts initiated new research coverage on Nvidia (NASDAQ:) stock at Neutral with a price target of $410 per share, which implies a downside risk of 15% based on Tuesday’s closing price.

“Our $410 price target is based on a 35x multiple on the $7.29 of CY24 EPS for the core company and $155 for the sandbox revenue still coming to NVDA over the next 4-6 quarters. We believe the value of this sandbox could drop considerably once NVDA growth rolls over,” analysts explained.

Nvidia stock closed 2.7% lower on the first trading day in 2024 and is down a further 1.1% in pre-market Wednesday.