Nvidia’s (NASDAQ:NVDA) long-term prospects are difficult to dismiss. Critics must reckon with the company’s impressive track record, which was reinforced just weeks ago by its triple-digit year-over-year revenue growth in the latest earnings report. While it’s expected that the rapid growth will eventually moderate, few doubt NVDA’s long-term resilience.
However, amid the widespread optimism, 5-star investor Poonam Arora is sounding a note of caution.
“Although NVDA’s stock price might jump every time the company reports earnings over the coming quarters, with some downside risk, a substantial decline in the price of the company’s shares is imminent,” Arora opined.
Arora raises concerns about the sustainability of Nvidia’s extraordinary growth and its long-term performance, noting: “NVDA’s Achilles Heel is its premium pricing policy, its attitude that stacking compute power is the solution for everything AI, and that hogging CUDA, its proprietary GPU programming software will handicap sales of the competition’s AI accelerators enough to ensure NVDA’s industry dominance into perpetuity.”
The investor further predicts that NVDA’s market dominance will eventually be challenged by major tech players, reducing its pricing leverage and market share. This threat is amplified by the fact that roughly 95% of NVDA’s revenues come from a small group of hyperscalers, leaving it vulnerable to shifts in the competitive landscape.
The upshot is that once these major players “have accumulated sufficient computing power generating hardware, their demand for NVDA’s offerings will decline dramatically.”
Looking at the long-term financial picture, Arora makes the logical jump that decreasing sales volumes and cheaper pricing will negatively impact NVDA’s revenue growth rates in the latter half of the decade.
“Consequently,” the investor added, “the firm’s margins, earnings, and free cash flows are likely to suffer.”
Arora urges investors against “placing overly enthusiastic long-term bets on NVDA,” and is therefore giving the company a Sell rating. (To watch Arora’s track record, click here)
Not surprisingly, the views on Wall Street are quite different than Arora’s bearish perspective. Of the 42 analysts who have weighed in over the past three months, 39 have rated NVDA a Buy and 3 a Hold, giving the stock a consensus Strong Buy rating. The 12-month average price target of $152.44 suggests a potential upside of 31% 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.
