Nvidia’s stock has been downgraded by New Street Research, with analysts citing limited further upside for the semiconductor giant. Meanwhile, shares of Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing Co. (TSMC) are being highlighted as top plays in the AI sector.
Key Takeaways
- Nvidia’s stock downgraded to neutral by New Street Research.
- AMD and TSMC shares are seen as having strong upside potential.
- Nvidia remains a strong player in AI data centers but faces near-term valuation concerns.
Nvidia’s Downgrade
Wall Street analysts have generally been bullish on Nvidia Corp.’s stock, but New Street Research analyst Pierre Ferragu has downgraded Nvidia shares from buy to neutral. Ferragu’s report, described as a “health check” on AI stocks, suggests that Nvidia’s upside will only materialize in a bull case scenario, which he is not yet convinced will happen.
Ferragu notes that consensus projections imply a 35% growth in revenue from graphics processing units by 2025. Despite this, he believes that the quality of Nvidia’s franchise remains intact and would consider buying again, but only on prolonged weakness.
Shares of Nvidia were down 1.3% in morning trading on Friday, and the stock is down 6.5% from its all-time high of $135.58 achieved on June 18. Ferragu has set a $135 target price on the shares.
AMD and TSMC: The New Favorites
Ferragu remains bullish on other AI stocks, particularly AMD and TSMC. He values AMD’s stock based on a 35x multiple of his $10 estimate for 2027 earnings per share, translating to a $345 target price for 2026. His 12-month target for AMD is $235, which is 38% above current levels.
For TSMC, Ferragu has set a NT$1,470 price target for 2026 and a NT$1,200 price target for 12 months from now. The 12-month target implies about 19% upside from recent levels.
Ferragu notes that expectations for AI semiconductors are aligned with capacity planning in the supply chain and the expansion of demand beyond hyperscalers. This alignment has not been seen since early 2023, when he predicted that AI hardware spending would inflect.
Investor Caution Advised
Ferragu advises investors to be more careful and selective in their exposure to AI stocks. While he still sees strong growth and upside potential in most names he covers, he emphasizes the need for prudence given the current market conditions.
In summary, while Nvidia remains a strong player in the AI data center market, its near-term valuation concerns have led to a more cautious outlook. Meanwhile, AMD and TSMC are emerging as top picks with strong upside potential.