Nvidia's Risk-Reward Proposition Is Much Less Favorable, According to 1 Wall Street Analyst
Nvidia's stock rating has been downgraded from buy to hold by Summit Insights analyst Kinngai Chan, citing concerns over potential deceleration in growth as GPU supply catches up with demand. Despite expected strong earnings, Chan warns of a larger margin contraction due to increased production of next-gen chips and competition from more efficient AI training methods. Additionally, potential risks from stricter export controls under the Trump administration add to the caution surrounding Nvidia and other high-valued AI stocks.
When you've been on a run like Nvidia (NVDA 3.97%) has over the past few years, it's almost always because investors see massive growth ahead. For a company positioned as the picks-and-shovels play for the entire artificial intelligence (AI) industry, many still think the sky is the limit for the AI chip king.
However, one Wall Street analyst thinks that may no longer be the case and is downgrading Nvidia from a buy rating to a hold with no price target listed.
Supply will catch up with demand
While Summit Insights analyst Kinngai Chan expects Nvidia to keep beating consensus estimates in future earnings reports, especially after strong fiscal 2025 fourth-quarter results, he's concerned "NVDA's outperformance and growth could decelerate into 2HFY26 as supply of NVDA's GPUs catches up to industry demand."
Chan also pointed out a larger contraction in margins than expected due to the company increasing production of its next-generation Blackwell chips. The emergence of DeepSeek, a powerful AI chatbot that was supposedly built at a fraction of the cost of popular names like ChatGPT also seems to be on Chan's mind. He noted that more efficient AI training and the ability to develop AI programs with less advanced computing will adversely impact Nvidia on a medium- to long-term basis.
Chan makes some good points here. While industry leaders usually find ways to adapt to new challenges, there is still a lot investors don't know about AI and its potential obstacles. There could be near-term risks from the Trump administration potentially following through with more intense export controls on chips, so caution is warranted with Nvidia, as well as with other large AI stocks that have seen their valuations soar.