Cathie Wood of ARK Invest and Mizuho analyst Jordan Klein share concerns about the extraordinary surge in Nvidia’s stock price, which has seen a remarkable 290% increase over the past year. While Nvidia’s fiscal 2024 revenue surged by 126%, driven by strong demand for its chips, Wood raises doubts about the sustainability of this growth trajectory.
Wood highlights the risk of a potential pause in spending and correction in excess inventories, particularly among Nvidia’s cloud customers, who represent a significant portion of its data center sales. She notes the possibility of intensifying competition as Nvidia’s customers, including cloud service providers and companies like Tesla, develop their own AI chips.
Similarly, Klein expresses concerns about the broader semiconductor market, particularly the persistent gains in Nvidia stock and its impact on other chipmakers’ valuations. He draws parallels to the late 1990s and early 2000s, cautioning against excessive optimism and suggesting that the current investor mentality resembles a frenzy reminiscent of that period.
Klein points out the significant gains in other semiconductor stocks like Broadcom, Marvell, Taiwan Semiconductor Manufacturing, and Micron Technology, which have risen substantially over the past year. However, he warns that the market may be overlooking underlying fundamentals, leading to an unsustainable rise in chip shares.
Moreover, there are broader implications for the equity market, as Klein questions what would support the market’s highs if Nvidia’s stock were to experience a significant correction. He notes that other tech stocks, including those in the Magnificent Seven, have not performed as strongly as Nvidia, raising concerns about the overall health of the tech sector.
While some analysts like Vijay Rakesh from Mizuho are bullish on Nvidia, raising their price targets and maintaining a Buy rating, others like Jordan Klein express caution regarding the rapid rise in Nvidia’s stock price. Rakesh remains optimistic about Nvidia’s prospects, citing the continued strong demand for AI and the potential for outperformance due to supply constraints.
On the other hand, Klein acknowledges the positive outlook for the semiconductor industry overall but anticipates a period of profit-taking following an Nvidia AI conference scheduled for March 18. Despite his concerns, Klein still sees year-end prices for semiconductor stocks higher than current levels.