Nvidia’s stock could plummet by over 50% from its current level of around $130 to $65 in the near term due to several risks on the horizon. The company’s business has boomed, driven by the surging demand for its graphics processing units (GPUs), which have become the de facto silicon for running artificial intelligence applications. However, there are multiple factors that could lead to a decline in Nvidia’s stock price.
One key risk is the potential cooling of AI training-related demand. As companies have devoted immense resources to building massive AI models, their growth rates may slow considerably, leading to revenue contraction. For instance, if Nvidia’s revenue growth rate slows from 20% between FY’25 and FY’27 to just 10%, its revenue could move from around $61 billion in FY’24 to just about $165 billion in FY’27.
Another risk is margin pressures due to increasing competition from other chipmakers like AMD. With AMD investing significantly to catch up, it claims that its new Instinct MI300X chip outperforms Nvidia’s current chips in several parameters. Additionally, big tech players like Google are doubling down on AI and machine learning-related silicon, posing a risk to Nvidia’s business and margins.
If we combine 1.2x revenue growth with contracting margins from 50% levels currently to about 35%, net income could decline by about 15% by 2027. This would lead to a decrease in the P/E multiple from around 44x now to about 25x, potentially translating into a decline in Nvidia stock price to around $65 per share.
The time horizon for this negative-return scenario is not significant, as it won’t make much difference whether it takes 2 years or 3. If the competitive threat plays out and Nvidia’s GPU cash cow faces headwinds, we could see a sizable correction.
Investors should consider the current uncertain macroeconomic environment and potential changes in the AI landscape when evaluating the downside for Nvidia stock. A more stable option is the Trefis High Quality Portfolio, which has provided better returns with less risk versus the benchmark index.
Source: https://www.forbes.com/sites/greatspeculations/2024/12/20/how-nvidia-stock-could-fall-to-65