The Street is awash with Nvidia (NASDAQ:NVDA) bulls and that’s not really much of a surprise. As an investor, if you would have listened to any naysayers over the past year and a half telling you the chip giant’s awesome run is about to come to an end, you would have missed out on some serious gains.
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But in the investing game, contrarians make things more interesting, and you can say investor Johnny Zhang is certainly going against the grain here.
“Nvidia Corporation’s strong demand drove significant revenue growth and raised expectations for continuous high growth, but I believe the current stock price is largely driven by sentiment and momentum,” Zhang opined.
While it has become difficult to draw even Neutral ratings from any Wall Street analysts willing to deviate from the bullish script, Zhang goes as far as to rate NVDA shares a Strong Sell. (To watch Zhang’s track record, click here)
So, what drives such a bearish outlook towards a market leader currently dominating the AI chip landscape?
Essentially, Zhang thinks the market expectations around Nvidia’s future growth may be “overly optimistic, with potential risks including pull-forward demand, competition, and geopolitical tensions.”
And while those past gains have been rather tasty, it’s the future investors should be concerned with. Zhang concedes Nvidia tripling its revenue over the past three years is no feat to be sniffed at and call its fundamentals “incredibly solid.” Meanwhile, the top-line growth has also been accompanied by margin expansion and a “significant increase” to the bottom-line. However, given how much momentum has been behind the stock’s ascent, Zhang thinks “any deviation from its current growth trajectory could trigger a deep selloff.”
Is there a danger of that happening? Zhang thinks so. Despite its leading role in the semiconductor sector, several challenges “loom ahead.” These include increased competition from tech giants creating their own chips, potential geopolitical risks related to Taiwan, and the inherent difficulty of maintaining high growth rates from an already elevated level.
“Keep in mind,” Zhang goes on to warn, “the Wall Street touts always encourage you to be most bullish on stocks when they are hot or portrayed as the next big thing in the future.”
It’s true the Wall Street analysts are still bullish here. The stock claims a Strong Buy consensus rating, based on a mix of 38 Buy recommendations vs. 3 Holds. That said, considering the huge year-to-date gains (up by 156%), the $132.88 average price target makes room for only 5% returns from current levels. (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.
