We recently published a list of Top 10 Latest AI Stock News and Analyst Ratings. Since NVIDIA Corp (NASDAQ:NVDA) ranks 3rd on the list, it deserves a deeper look.
The much-feared correction in mega-cap tech stocks is here as investors keep pulling out of AI winners to pile into small-cap stocks as possible rate cuts from the Federal Reserve near. Brent Thill, Jefferies tech research analyst, recently said while talking to CNBC that we are seeing a rotation inside the tech industry where semiconductor and internet companies are performing well while software companies are underperforming. However, Thill reiterated his view that in the back half of the year things will start to change and tech companies will start their rebound. The analyst cited a few software earnings that suggest no signs of “demand cracks.” He said that many semiconductor stocks are now in the overbought territory.
Brent Thill said the selloff has made software stocks more “attractive.”
But Thill also sees a broader rotation ongoing in the stock market, where sectors like financials and industrials are benefitting amid investor exodus from tech.
Asked what is causing a sudden rebound in small-cap stocks, Thill said that interest rate cut expectations and a broader rotation out of mega-cap stocks have a role to play here, in addition to the M&A activity which has increased significantly recently.
Thill thinks the AI “payoff” time is still years away and companies are still at the beginning of the AI spending curve.
For this article we compiled the biggest AI news updates and analyst rating upgrades/downgrades around AI stocks over the past few days. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 186
Raymond James analyst Javed Mirza recently said in a report that NVDA has “triggered a mechanical sell signal” based on a moving average convergence/divergence indicator. In a technical analysis report, he stated that the stock is trading below its 50-day moving average and exhibiting early signs of selling pressure. This, according to Mirza, shows there is a looming corrective phase lasting 1-3 months. He added that a sustained break below the 50-day moving average could lead to a decline towards 94.94, representing a further 16.9% drop from current levels.
NVIDIA Corp (NASDAQ:NVDA) rapid run and soaring valuation have started to make some circles on Wall Street uneasy. New Street Research recently downgraded the stock to Neutral from Buy and set the stock’s price target at $135.
“We downgrade the stock to Neutral today, as upside will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet.” New Street analyst Pierre Ferragu said.
NYU professor and valuation guru Aswath Damodoran has also been skeptical about NVDA over the past several months, saying repeatedly that the stock looks overvalued. In March, when he was asked about his previous predictions (that proved wrong) about NVDA valuation, the professor said that either he has “no idea what I’m talking about” or it’s the market that just does not understand.
Aswath Damodoran at the time said that while Nvidia was in the “driving seat” of the AI bandwagon, its path to profits won’t be as easy as the market assumes.
Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target to $150 from $110 following the 10-1 stock split.
NVIDIA Corp (NASDAQ:NVDA) is one of the stocks accounting for a huge chunk of the total market returns, thanks to its AI-fueled rally that seems to have no end in sight. NVIDIA Corp (NASDAQ:NVDA) shares have gained about 174% over the past year.
Patient Capital Opportunity Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) continued to lead both the market and the portfolio, remaining a top performer in the period gaining 36.7%. Nvidia is the market leader in designing and selling Graphics Processing Units (GPU), which has recently benefited from the insatiable demand of artificial intelligence (AI) models. The company currently captures 92% market share of data center GPUs and grew revenue, earnings and free cash flow (“FCF”) an astounding 126%, 392%, and 610%, respectively, over the last year. While we expect competition to increase, we think NVDA can continue to maintain top market share. While many are concerned with backlog times shortening, we think the rollout of the B100, which promises 2.5x better performance for only 25% more cost, later this year will create more shortages. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of artificial intelligence (AI).”
Overall, NVIDIA Corp (NASDAQ:NVDA) ranks 3rd on Insider Monkey’s list titled Top 10 Latest AI Stock News and Analyst Ratings. While we acknowledge the potential of NVIDIA Corp (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
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