Nvidia Stock Reaches Its Peak, Analyst Warns

Nvidia’s stock has experienced a remarkable 1,776% increase over the past five years; however, tech analyst Gil Luria of DA Davidson suggests that the company may have reached its zenith. Recent data indicates that Nvidia’s growth rate is decelerating, with Q4 revenue marking its slowest increase in nearly two years.

The stock fell by 6% on Thursday after the fourth-quarter earnings report did not meet investor expectations. Following the impressive 1,776% gain, Luria expressed concerns regarding Nvidia’s future growth trajectory. “This is as good as it gets for Nvidia,” he remarked to CNBC, coinciding with a noticeable drop in the stock, which plunged by as much as 8% during trading. Ultimately, shares closed down 6%, contributing to a 3% decline in the tech-heavy Nasdaq index.

Factors Contributing to Slowdown

Luria articulates several potential hurdles that Nvidia may face going forward:

1. Peak Demand for AI ChipsAccording to Luria, expenditures on Nvidia’s GPU chips from major clients like Microsoft, Meta Platforms, and Amazon have reached a peak. Even with recent increases in their capital expenditures guidance, it seems that top customers will consider spending stabilization. “Their largest customers have boosted their spending as much as they ever will,” Luria noted. Given that over a third of Nvidia’s revenue is generated from these three clients, this development raises concerns about a potential oversupply of GPU chips and dwindling demand as companies start to evaluate their AI-related investment returns.

   
   

2. Intensified Competition from ChinaIncreased competition from China poses another significant challenge, with Luria warning that even without tariffs from the Trump administration, Nvidia is likely to face pressure in this market. He stated, “Sales to China will remain under pressure due to forthcoming restrictions.” Reports indicate that Chinese laboratories are shifting their AI workloads onto GPU chips manufactured by Huawei, pointing to heightened competitiveness in the region.

   
   

3. Declining Profit MarginsPerhaps the most critical factor is the fluctuation of Nvidia’s profit margins, which are affected by its strategy of introducing new GPU chips annually. “Every time they hit a gross margin of 75%, a new product releases and drags it back to the low 70s,” Luria explained. Nvidia’s latest earnings report reflected weak profit margin guidance, forecasting a gross profit margin of around 71% for the first quarter as it manages the rollout of its Blackwell GPUs.

   
   

Outlook

Despite a lukewarm outlook, Luria does not hold a bearish view on Nvidia, maintaining a “Neutral” rating with a price target of $135. After the announcement of its fourth-quarter earnings, Nvidia’s stock fluctuated between gains and losses, ultimately settling at a lower price of $126.49, declining approximately 4% on Thursday.