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Nvidia (NVDA) just went through an extremely volatile trading week as the chipmaker's stock reversed direction from hitting new all-time highs. Wall Street is now fiercely debating whether Nvidia can sustain its record-breaking rally amid increasing competition and questions over future pricing power.
While Bank of America reiterated its Buy rating and $150 price target, calling Nvidia a "top pick," analysts warn that the company's "gravy train" of stellar growth could come to a "screeching halt" if key trends reverse course.
NVDA to close the AI “wealth window’ June 25?
On Tuesday, June 25, in front of executives from nearly every major tech company in existence, key leaders at Nvidia are poised to SHOCK the investing world. Full Story >>Patrick Moorhead, founder and CEO of Moor Insights & Strategy, cautioned that investors should watch for potential pullbacks. He said that while Nvidia's AI dominance is unlikely to change over the next six to nine months, the "downstream profitability" of software giants like Adobe, Salesforce, SAP, and ServiceNow will be crucial.
"If those enterprises and those consumers aren't paying more for these new AI features, then this whole gravy train comes to a screeching halt, like we saw in the internet bust," Moorhead explained.
Increased competition in AI chips from not just "merchant silicon providers" like AMD and Intel but also "homegrown ones" from Amazon, Microsoft, and Google could also serve as a major headwind to Nvidia's pricing power.
Despite these risks, the bullish case for Nvidia to become a $4 trillion company continues gaining steam. The company briefly dethroned Microsoft as the world's most valuable firm on Tuesday, with its market cap edging to around $3.12 trillion before retreating below Microsoft's $3.33 trillion valuation.
Driving optimism is Nvidia's blistering financial performance, including 461% year-over-year growth in adjusted earnings and 262% revenue growth in its latest quarter. The company also completed a 10-for-1 stock split and doubled its dividend, amplifying shareholder returns.
Shares have surged around 200% over the past year and a staggering 3,200% over five years. Year-to-date, Nvidia has rallied 160% on euphoria over AI's boom.
"I don't see any reason it couldn't get up to $4 trillion," said Moorhead, despite Nvidia's "astronomical" price-to-earnings ratio, citing robust expectations.
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Wedbush analyst Dan Ives agrees, writing "the race to $4 trillion market cap in tech will be front and center between Nvidia, Apple, and Microsoft." Ives expects enterprise AI spending to hit $1 trillion over the next decade.
"Its 9pm in a party going till 4am with the rest of the tech world now joining," Ives proclaimed about the AI revolution that is "just getting started."
However, Nvidia's ability to claim a $4 trillion valuation hinges on maintaining downstream profitability for software firms while fending off intensifying competition that could erode the company's dominant pricing power. For now, AI euphoria is propelling Nvidia's "gravy train" onward – but analysts warn the rails could become unstable without continued execution.
