Analyst Concerns Weigh on NVIDIA’s Stock

Shares of NVIDIA (NASDAQ: NVDA), a leading designer of graphics processing units (GPUs), are facing renewed scrutiny following a recent research update from HSBC. The international banking giant has revised its rating on NVIDIA, signaling a more cautious outlook on the company’s near-term growth prospects.

From “Buy” to “hold”: A Shift in Perspective

HSBC has downgraded NVIDIA from a “Buy” rating to a “Hold” rating, simultaneously lowering the target share price. This decision reflects concerns about the company’s ability to sustain its previous levels of growth in the immediate future.Frank Lee, an analyst at HSBC, highlighted that NVIDIA’s stock price has already experienced a notable correction, dropping by 26% since its peak in January.

Nvidia’s share price has fallen by 26 percent since its last high in January.

Frank Lee, Analyst at HSBC

Limited Price Enforcement Power in Core Markets

A key factor driving HSBC’s revised outlook is the anticipation of constrained pricing power for GPUs. While NVIDIA remains a dominant player in the GPU market, increased competition and evolving market dynamics are expected to limit its ability to command premium prices. This, in turn, could impact the company’s profitability in the short to medium term. The analyst suggests that the current price-profit ratio does not appear attractive.

…little scope in the next one to two years for significant profit surprises and potential headwear in the re -evaluation of Nvidia.

HSBC Report

Future Growth Hinges on Emerging Technologies

While near-term prospects appear tempered, HSBC acknowledges the long-term potential of NVIDIA in emerging markets such as robotics, autonomous vehicles, and artificial intelligence (AI). Though, the analyst believes that these opportunities are not yet mature enough to offset the challenges in the core GPU market. The report suggests that the market has not fully accounted for these circumstances.

For example, while the autonomous vehicle market is projected to reach USD 61.87 billion in 2025 (Source: Fortune Business Insights), widespread adoption and significant revenue generation for NVIDIA are still several years away.

Market implications and Investor Considerations

HSBC’s downgrade serves as a reminder of the cyclical nature of the technology industry and the importance of considering both short-term and long-term growth drivers. Investors in NVIDIA should carefully weigh the potential risks and rewards, taking into account the company’s strong market position, its investments in emerging technologies, and the evolving competitive landscape.The report indicates that there is little scope in the next one to two years for significant profit surprises.