Semiconductor giant Nvidia (NVDA) stock’s rating has been cut to “Hold” from “Buy” by research firm Summit Insights. Analyst Kinngai Chan downgraded NVDA stock since he believes the “risk-reward is no longer favorable,” following its yet another robust quarterly performance. Chan is a four-star analyst at TipRanks, boasting an impressive average return per rating of 28% and a success rate of 70%.
Nvidia reported better-than-expected earnings and sales figures for the fourth quarter of Fiscal 2024 and provided a stellar guidance. Sales jumped 78% year-over-year, thanks to a solid demand for its AI (artificial intelligence) GPUs (Graphic Processing Units) and chips. However, the analyst is worried about Nvidia’s declining gross margins, which have reduced by 3% compared to Q4FY23.
Here’s Why Chan Downgraded NVDA Stock
Although Chan is impressed by Nvidia’s solid Q4 results, he believes that the heightened expectations from the chipmaker have reduced the risk-reward scenario for the stock. Having said that, the analyst is confident that Nvidia will continue to outperform market expectations, backed by its leadership in building advanced AI chips and the ongoing AI rally.
Let’s look at the five key reasons for the analyst’s downgrade.
- Declining Margins – Nvidia’s margins are expected to remain pressured as it plans to boost the production of its next-generation Blackwell Ultra chips. Thus, the contracting margins are making the stock less attractive.
- Consistently High Expectations – Chan is also concerned about the consistently high “whisper numbers” from analysts as these put solid pressure on the company to perform. Whisper numbers are what analysts forecast about a company’s earnings per share (EPS) for a particular quarter. Investors often penalize the stock if the company is unable to beat these expectations.
- Potential Entry into the PC Client MPU Market – The analyst also referred to the buzz surrounding Nvidia’s potential entry into the PC (personal computers) client Microprocessor Unit (MPU) market in the later part of 2025. Nvidia is expected to partner with MediaTek to develop Arm (ARM) based processors for client laptops in the highly competitive market, further pressurizing its performance.
- AI Training vs. Inference Trend – Chan also noted that the AI market is shifting from training models to inference. While AI training requires advanced infrastructure, inference requires lower computing power from more efficient AI models. China’s low-cost DeepSeek model has already put this point into perspective. Such changes could potentially harm Nvidia’s financial performance in the medium-to-long-term.
- Supply to Catch Up with Demand – Finally, the analyst believes that Nvidia’s demand momentum could slowdown in the second half of Fiscal 2026. This could be as Nvidia’s GPU supply could catchup with the sector’s demand.
Chan’s views coincide with some of the investors’ concerns about Nvidia’s sky-high valuation. Surprisingly, its stock also fell 1.5% in after-hours trading yesterday, following the solid results, instead of rising. Analysts and investors have begun to wonder if there is indeed more room to grow for Nvidia’s stock. NVDA has gained 66.9% in the past year and more than 439% in the last three years.
Is Nvidia a Good Buy Right Now?
Overall, a majority of analysts remain highly optimistic about Nvidia’s stock trajectory but these ratings could change when more analysts review their recommendations, post the earnings.
Currently, on TipRanks, NVDA stock commands a Strong Buy consensus rating based on 33 Buys versus three Hold ratings. The average Nvidia price target of $177.87 implies 35.5% upside potential from current levels.
