By by Jack Denton
Brave is the analyst who makes the bearish call on Nvidia stock.
But that's just the case Jay Goldberg of Seaport Research Partners made in a note on Thursday, reiterating a Sell rating on Nvidia and price target of $180, meaningfully below the stock's $212 closing price on Thursday.
Nvidia stock was up 1.3% in premarket trading on Friday, bucking its 4.4% slide in Thursday trading as chip and AI stocks sold off as, once again, fears around the sustainability of AI spending rattle the market.
Goldberg understands the counter-consensus nature of a bearish call on Nvidia stock, which has enjoyed stratospheric gains in recent years to become the world's most valuable public company.
"Nvidia is heading into early 2027 in a good position," Goldberg said, detailing that in the immediate term Nvidia looks set to continue record sales, and that its stock could see relief -- and even be a safe haven -- as peers struggle.
However, "competitive pressures are mounting," Goldberg said. "We see their aggressive finance bundling as a reaction to competitive pressure and a strategic tension at the heart of their business."
"We could be wrong about Nvidia in the coming months as they leverage their supply chain heft," Goldberg added. "Over the next year we think we will be right."
There are four pillars at the core of Seaport's bearish thesis.
The first is the reality of data center construction plans, with around 55 GW worth of operations announced for the next year, representing a mountain of orders that should benefit Nvidia if they are executed. However, "no one thinks there are enough electricians, gas turbines and utility interconnect to get beyond 30 GW."
Goldberg also flags that "Nvidia risks over-taxing its balance sheet," with some $250 billion in commitments toward locking down the supply chain and supporting data center construction. And that doesn't include its obligations to the $500 billion funding scheme the company is working on with Wall Street, which could balloon to $1 trillion, Goldberg said.
"Admittedly, Nvidia can afford all of this," Goldberg said, with the company on a path to $200 billion in operating cash flow this year. "The risk here is that this kind of liability is pro-cyclical. It will boost things when times are good, but when the cycle turns down, the debt will amplify the pain."
Then there is the nagging worry about "circular financing," as Nvidia invests in and loans money to its suppliers and customers. This has raised concerns around potentially artificially inflated demand, striking a chord with investors amid worries over the sustainability of AI spending.
"The company positions their spending on neoclouds and data centers as an investment, which is fair. But it is also a discount." Goldberg said. "Nvidia seems to be taking pains to say it has not cut prices for its products, but providing backstops and credit guarantees are customer-favorable terms, another form of discounting." This could be a sign of hidden competitive pressures, according to Seaport.
Moreover, "at the heart of its business model, Nvidia faces a strategic tension." Goldberg said. It's about neoclouds -- like CoreWeave and Nebius -- which are essentially computing-as-a-service providers. These companies differ from the larger, dominant, and more generalized cloud computing groups like Amazon, Microsoft, or Alphabet's Google with their specific focus on the intensive compute required for AI.
Neoclouds have recently been at the heart of stock-market worries over AI spending because of the massive debt they have taken on against a still-uncertain backdrop for AI infrastructure profitability amid high spending.
"On the one hand, [Nvidia] very much wants the neoclouds to exist. It has willed them into existence because it would rather have 200 small, dependent customers than three massive customers with all the leverage," Goldberg said. "On the other hand ... [Nvidia] is also taxing their financial capabilities ... If the neoclouds fail to lift off, that doubles back on Nvidia with reduced sales and even more reduced margins."
This may all be a lot to swallow for Nvidia shareholders hoping the stock's bump on Friday is a sign of easing pressures. Seaport's thesis isn't about near-term headwinds but rather the longer-term outlook, giving investors time to mull it over.
"This could all take a long time to play out," Goldberg said. "While Nvidia remains the leader in the AI data center, the pressures on it are increasing."
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