Nvidia (NASDAQ: NVDA) has been a Wall Street darling for some time. And with good reason. The stock has roughly tripled in the past twelve months and is up more than sevenfold since September 2022.
However, not everyone on Wall Street remains enthusiastic about Nvidia. An analyst thinks that shares of the GPU maker will fall almost 28% over the next twelve months.
A prediction of future problems
DA Davidson's Gil Luria set a $620 price target for Nvidia. That reflects expectations of a steep decline from the current share price of around $864.
Why is Luria so bearish on chip stocks? He predicts potential problems due to a shift in spending by big tech companies. Notably, Luria thinks major Nvidia customers, including Google, are mum Alphabet, Amazon, MetaplatformsAnd Microsoft will eventually have all the GPU capacity they need. He recently told BNN Bloomberg that these technology giants will no longer buy chips generative AI indefinitely at the rate they purchased.
All these companies have developed their own AI chips. For example, Google announced its new Arm-based Axion chip in April. Meta also rolled out the next generation of its custom MTIA chip last month. Amazon is offering cloud customers the option to use its cost-effective Inferentia and Trainium2 chips to run AI apps. Microsoft has its Maia and Cobalt AI chips.
Some major Nvidia customers have also turned to Nvidia's biggest rival, Advanced micro devices. Meta and Microsoft buy AMD's new Instinct MI300X chip. AMD claims the chip is better at AI inference than Nvidia's flagship H100 GPU.
Others warn of the risk of Nvidia
Luria is in the minority on Wall Street. Of the 38 analysts surveyed by LSEG so far in May, 21 rate the stock as a Buy or a Strong Buy. However, he is not the only one to warn about the risks for Nvidia.
Richard Hunter, head of markets at Interactive Investor, has expressed concern that Nvidia could fall victim to inflated expectations. He also thinks tensions with China could hurt Nvidia's stock price.
Aswath Damodaran, the NYU finance professor known as the “Dean of Valuation,” is bullish on Nvidia's business prospects, but not on its valuation. His model estimated a fair value for the stock at $436 – almost half the current share price.
Damodaran posted on X (formerly known as Twitter) that he planned to sell half of his position in Nvidia. He said the stock was “a bridge too far for me” because of its premium price.
Will Nvidia Stocks Plunge?
Could these negative predictions about Nvidia come true? Will the stock fall 28% over the next twelve months? Maybe.
Nvidia, like any other company, is subject to the laws of supply and demand. If demand for AI chips declines, as Luria expects, Nvidia shares will likely retreat. Luria told BNN Bloomberg: “The higher we go this year, the more we will fall next year, and that is not in the stocks.” While he acknowledged it could take longer than he predicted, Nvidia's current momentum won't last forever.
However, Nvidia has a strong first mover advantage in the AI chip market. So far, demand remains strong. I wouldn't bet on Nvidia stock actually falling 28% anytime soon. If it does happen, I think it will be a fantastic buying opportunity.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool's board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Amazon, Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
1 Wall Street analyst thinks Nvidia shares will plummet 28%. Is he right? was originally published by The Motley Fool
