98% Of Nvidia Analysts Have “Buy” Rating
Almost every Wall Street analyst is pounding the table on Nvidia, yet a growing chorus of skeptics argues the entire AI spending boom rests on a foundation that has yet to deliver a single dollar of payoff outside of tech.
There are a couple of ways to look at it, but the picture is about the same. MarketBeat shows that 54 of the 55 analysts who cover Nvidia (NASDAQ: NVDA | NVDA Price Prediction) have a bullish call (“strong buy”, “buy”). Stock Analysis has the figure at 59 of 62 analysts. That is a range of over 95% to 98%. The news is either good or bad.
So many buy ratings are exceptional, as the stock continues its climb. At least a few analysts are skeptical. The average price target across all analysts is $325. The stock trades at $211 today. So, the assumption is that it can rise 54%. If the past means anything, the forecast is not crazy. Nvidia is up 725% in the last five years, but has done no better than the S&P 500 this year.
Nvidia’s stock price rests on two pillars. The first is 100% year-over-year revenue growth each quarter. In the most recently reported quarter, revenue was up 106% to $96 billion. On paper, by 2029, it should be the largest company in the US based on revenue, jumping ahead of Amazon (NASDAQ: AMZN). It would not take much of a dent in that growth to drive off some investors.
Nvidia’s growth rests on one simple premise: Data center growth will stay on fire. Megatech companies like Microsoft (NASDAQ: MSFT) will continue to have negative cash flow after decades of being positive. And Wall St. will need to fill in what these companies cannot. Skeptics have already argued that this is not sustainable. Apollo economist Torsten Slok notes, “Despite massive investments and widespread hype around artificial intelligence, the technology has delivered zero financial payoff to corporate America outside of tech.” In other words, the forecasts based on customer demand are deeply flawed. If this continues, presumably customer demand will dry up.
A major anxiety about Nvidia is that it sells the chips at the heart of AI’s technology success and growth rate, making it the arms merchant to the entire industry. Over and over again, critics and analysts say that Nvidia funds the demand for its own products by investing in its own chip customers. Nvidia’s balance sheet, and to an extent its revenue, is built on a house of cards.
And fulfilling AI demand may not be entirely driven by profitability. Depending on who is counting, communities that do not want data centers have delayed 200 of them this year. It has become a rallying point for some politicians, and there is no reason it will go away. By itself, this could slow AI growth.
A reader may say this analysis adds nothing new. It does not. It is, however, a juxtaposition of analysts’ wild optimism set next to what may be a less-than-perfect outcome.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
