Nvidia (NVDA) shares experienced a 3.5% decline, closing at $175.64 on Tuesday, despite TD Cowen raising its price target on the stock to $235 from $175 and reiterating a “Buy” rating on the stock.
The NVDA share price movement reflects broader market apprehension regarding the sustainability of the artificial intelligence (AI) boom and increasing competition within the AI chip market.
The Nasdaq-listed stock’s decline occurred within a wider tech sell-off, with the Nasdaq Composite falling 1.4%, its largest single-day drop since August 1, and the S&P 500 decreasing by 0.6%.
Markets are showing skepticism regarding the long-term profitability of AI technologies. A report from the Massachusetts Institute of Technology indicated that a significant majority of organizations are not yet realizing returns from their investments in generative AI.
The market decline also reflected the jitters ahead of the Fed's annual symposium at Jackson Hole, Wyoming, from August 21 to 23. Chair Powell's comments will be closely assessed for any clues on the central bank's outlook for the economy and monetary policy.
TD Cowen's bullish stance on Nvidia is underpinned by the firm’s belief that the company offers a “cleaner set-up” compared to competitors like Broadcom (AVGO).
The analyst emphasized Nvidia’s position as the “best and cleanest way” to gain exposure to AI, anticipating the company will surpass expectations in upcoming earnings reports.
The TD Cowen analyst noted that Nvidia shares are currently trading at a discount to Broadcom, a factor the bank believes makes Nvidia particularly attractive.
Adding to the headwinds, Advanced Micro Devices (AMD) recently announced a $5 billion acquisition of ZT Systems, a move designed to bolster its GPU sales and intensify competition in the AI chip market.
Nvidia currently holds a dominant position in this sector, and AMD’s strategic purchase has contributed to investor anxieties about increased competitive pressures.
Analyst Summary: Bull and Bear Cases
Bull Case:
- TD Cowen raised its price target to $235 and reiterated a “Buy” rating.
- The company is considered the “best and cleanest way” to gain exposure to the AI sector.
- Analysts anticipate Nvidia will surpass upcoming earnings expectations.
- The stock is currently trading at a discount compared to key competitors like Broadcom.
Bear Case:
- The stock recently declined by 3.5% amid a broader tech sell-off.
- There is growing market skepticism about the long-term profitability and sustainability of the AI boom.
- Competition is intensifying, notably from AMD's recent strategic acquisition to bolster its GPU sales.
- A recent MIT report suggests many organizations are not yet seeing returns on their generative AI investments.
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