Amid Wall Street's fervent enthusiasm for NVIDIA, one analyst is swimming against the tide. Among the 80 analysts covering NVIDIA, Jay Goldberg of Seaport Global Securities stands out with the lone "sell" rating, setting a target price of $100.
"I remain skeptical about all the hype surrounding AI," Goldberg stated in a Bloomberg interview. "This is not my first encounter with a bubble." He likens the current situation to the dot-com bubble around the year 2000, warning that once the massive expenditures supporting high valuations slow down, the market landscape could swiftly reverse.
This stance sharply contrasts with the prevailing optimistic sentiment in the market. Currently, the average target price from Wall Street analysts is around $220, signaling an 18% upside potential.
Is History Repeating? Aiming at the Dot-Com Bubble In Goldberg's view, NVIDIA's astounding growth primarily relies on substantial capital expenditures from a few technology giants. Microsoft, Alphabet, Amazon, Meta, Oracle, and OpenAI are competing to build AI infrastructure, creating a massive demand that has propelled NVIDIA's market value to $4.5 trillion.
By 2025, these five publicly listed companies are expected to approach $400 billion in capital expenditures, with OpenAI also committing over $1 trillion. However, Goldberg cautions investors to consider how limited the actual returns have been from these significant investments.
He argues that this pattern closely resembles the telecom infrastructure developments during the dot-com bubble, when Cisco's stock skyrocketed due to anticipated internet traffic, only to suffer a significant downturn when expectations failed to materialize. More than twenty years later, Cisco's stock price has yet to return to its 2000 peak.
Goldberg warns: "We're currently seeing a pattern very similar to what was felt back then. Largely driven by psychological reasons, we will build all this AI infrastructure. At some point, the spending will stop, and then the entire system will collapse, leading to a reset."
Power, Leverage, and Limited Upside Potential In addition to historical comparisons, Goldberg suggests that since the market consensus perceives much of NVIDIA's AI chip supply is sold out, one must question where further price increases will come from. "There aren't many drivers for the upside."
He also raises concerns regarding the unknown sources of incremental power supply for all newly constructed data centers. Moreover, the leverage surrounding data center developments continues to accumulate: "When you trace where all these GPUs are going, you delve into 'neoclouds' and the intricate details of the ongoing power and real estate transactions. It’s easy to imagine that if an obscure company were to fail, it could trigger a chain reaction throughout the entire supply chain."
Notably, Goldberg's "sell" rating does not imply a recommendation for investors to short the stock. He clearly acknowledges his admiration for NVIDIA and its CEO Jensen Huang. To him, "sell" means he expects the stock to underperform relative to peers like Broadcom, Qualcomm, and AMD.
Growing Concerns on Wall Street About the AI Bubble Although Jay Goldberg is the sole analyst issuing a "sell" rating, his concerns regarding an AI bubble are not isolated on Wall Street. Goldman Sachs CEO David Solomon has recently drawn parallels between the current AI enthusiasm and the frenzy during the dot-com bubble.
According to Bank of America's latest global fund manager survey, the proportion of respondents believing AI stocks exhibit bubble characteristics has reached a historic high. Even OpenAI's CEO, Sam Altman, affirmed that he sees the possibility of an AI bubble when asked about it. Such sentiments provide some corroboration for Goldberg's contrarian viewpoint.
Reflecting on his bearish rating, Goldberg stated: "I have not received any rebuttals to my arguments. Some say I am too early, but no one calls me crazy. I think we all see that there are signs of excessive exuberance in the AI space. While NVIDIA is a good company, it is not invincible."
Overwhelmingly Bullish: "We Are Still in the Early Stages" Despite Goldberg's bubble warnings, the mainstream sentiment on Wall Street remains firmly bullish. Among the 80 analysts covering NVIDIA, 73 have given equivalent to "buy" ratings, while 6 hold "hold" views.
Jim Awad, Senior Managing Director at Clearstead Advisors, remarked: "AI represents a generational cycle that will last several years, and we are still in the early stages, even far from mid-stage. NVIDIA is a significant player in this space, powering the economy and the stock market." The firm holds NVIDIA stock.
Moon Surana, a portfolio manager at Harding Loevner LP, echoed similar views, asserting that we are still in the early investment phase, "with no signs of overcapacity yet, and no GPUs are idle."
The most optimistic analyst is Frank Lee from HSBC, who recently upgraded NVIDIA's rating to "buy" with a target price as high as $320, citing that demand for AI accelerators will surpass the current largest customers.
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