Nvidia’s stock (NVDA) saw a 2.7% increase early Thursday as Wall Street analysts reaffirmed their Buy ratings, despite growing concerns surrounding intensified competition and a potential slowdown in demand for artificial intelligence chips. This recent surge follows several days of positive outlooks from prominent analysts at Bernstein, TD Cowen, Morgan Stanley, and Truist.
Truist Securities analyst William Stein, in a Monday report, highlighted the “dominance and superiority of NVDA’s full technology stack,” echoing sentiments from industry contacts. This confidence led Stein to raise his price target for Nvidia from $169 to $204. Buoyed by this positive analyst sentiment, Nvidia shares rallied as much as 4.8% on Wednesday before retracting gains and closing down approximately 1% amidst a broader market decline triggered by the Federal Reserve’s projections of fewer rate cuts and persistent inflation in 2025.
Despite Thursday’s early gains, Nvidia’s stock price remains around 11% below its record closing high of $148.88 reached in early November.
Investor apprehension stems from the potential for Nvidia’s GPUs to lose market share in the burgeoning AI chip sector as major clients like Google (GOOG) and Meta (META) collaborate with Broadcom (AVGO) to develop custom chips. Furthermore, Microsoft (MSFT), Tesla (TSLA), and Amazon (AMZN) are also pursuing in-house custom chip development. Broadcom’s recent announcement of developing chips for two additional clients, rumored to be ChatGPT creator OpenAI and Apple (AAPL), bolstered its own stock while negatively impacting Nvidia’s.
These custom chips, known as Application-Specific Integrated Circuits (ASICs), pose a potential threat to Nvidia’s GPUs due to their lower cost and tailored design to meet specific AI requirements. A December 15th Morgan Stanley report projected that custom chips used for cloud AI services could increase their market share from 11% in 2024 to 15% in 2030.
However, Morgan Stanley also acknowledged Nvidia’s historical track record of maintaining dominance in the AI chip market. The report emphasized that while ASICs continue to improve, “Nvidia’s strong execution continues to raise the bar for its competitors.” Bank of America semiconductor analyst Vivek Arya echoed this sentiment on Wednesday’s Opening Bid podcast, highlighting Nvidia’s resilience.
Concerns persist regarding a potential slowdown in Big Tech’s spending on AI chips, a key driver of Nvidia’s recent growth. Recent earnings reports from Microsoft and Google suggest a moderation in the pace of their AI spending. Additionally, growing concerns about diminishing returns in AI model improvements could further dampen investment in the sector.
Addressing these concerns, TD Cowen analyst Joshua Buchalter noted that in a recent meeting, Nvidia acknowledged the potential slowdown but “remains confident in the industry’s ability to progress and continue to innovate.” Furthermore, Stein anticipates Nvidia will unveil a standalone CPU in 2025, potentially unlocking a $35 billion market opportunity. Currently, Nvidia utilizes its Arm-based Grace CPUs alongside its Blackwell GPUs in servers sold to customers but does not offer CPUs as standalone products. This strategic move could significantly expand Nvidia’s market reach and solidify its position in the evolving landscape of AI computing.
