Those who have bet against Nvidia (NASDAQ:NVDA) over the past few years have been proven wrong again and again (and again). Since the launch of ChatGPT in November 2022, the AI chipmaker has exceeded expectations quarter after quarter.
That being said, the last month has been a fairly volatile period for the nearly $3 trillion company, with shares dipping about 5% following its most recent earnings call just weeks ago.
While no one is doubting NVDA’s past performance, many investors are now questioning how much longer the company can sustain its remarkable year-over-year growth.
One investor, Daniel Schönberger, believes that NVDA’s perch among the top stock performers is becoming precarious.
“Not only are growth rates slowing down (which is not surprising, as these extremely high-growth rates are unsustainable), but the gross margin is also declining,” writes the investor.
Beyond the slowing rates, Schönberger cites larger trends that do not bode well for the chipmaker.
“Nvidia is a cyclical business, and the last two years were an exceptional opportunity for Nvidia (and one which probably won’t repeat in the foreseeable future),” writes the investor, who adds that “competition will increase, and demand from companies will likely decline (especially with the risk of the United States headed for a recession.)”
For Schönberger, this is causing a mismatch between the future earnings and the current share price. Nvidia is trading at 50x earnings and 57x free cash flow, which the investor believes is “rather expensive.”
The investor adds that this more cautious outlook may be gaining traction on Wall Street, noting that “analysts are turning on Nvidia and are starting to lower expectations for the years to come.” Schönberger believes that this is worth watching closely, as “lowering expectations might go hand in hand with sentiment turning.”
This is the key point for investors, as the mood in the market can set off a chain reaction that could make holding Nvidia a dangerous proposition. “Stocks that are driven by sentiment extremely are often exaggerated in both directions – a bubble peak is followed by a complete (and also unjustified) collapse of the stock price,” the investor summed up.
All in all, worried about the risk of a “lost decade,” Schönberger rates NVDA shares a Sell. (To watch Schönberger’s track record, click here)
Yet, while Schönberger argues analysts are cooling on Nvidia, the consensus remains a Strong Buy. Out of 42 analyst ratings, 39 are Buys, with just 3 Holds. Additionally, NVDA’s 12-month price target of $153.24 suggests a potential ~29% upside from current levels. (See NVDA 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.
