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Nvidia (NASDAQ: NVDA) remains sizzling hot. Its share price has skyrocketed over 150% so far this year following a gain of nearly 240% in 2023. The company’s sales jumped 262% year over year in the first quarter.

Everything seems to be going Nvidia’s way. So why did one analyst just downgrade Nvidia stock?

The main concern with Nvidia

On Friday, NewStreet Research analyst Pierre Ferragu did something rare these days: He downgraded Nvidia stock. Ferragu previously recommended the stock as a buy; he now maintains a neutral rating on the graphics processing unit (GPU) maker.

Ferragu’s primary concern with Nvidia isn’t surprising. He thinks the stock’s valuation has reached a point where it simply doesn’t have much room to run, writing last week, “We see limited further upside based on what we hear from the value chain.” Ferragu said that upside potential “will only materialize in a bull case,” and that he doesn’t “have the conviction on this scenario playing out yet.”

NewStreet Research isn’t the only party concerned about Nvidia’s valuation. New York University finance professor Aswath Damodaran, one of the most prominent stock valuation experts in the world, has an even more dire outlook. Damodaran believes Nvidia could be close to 50% overvalued after its remarkable run.

Not all bad news

Don’t think Ferragu has become an Nvidia bear, though. His one-year price target for the stock is $135, slightly higher than the current share price. Ferragu’s two-year price target for Nvidia is $143, reflecting an upside potential of roughly 9%.

He also remains optimistic about Nvidia’s underlying business, stating, “The quality of the franchise is nevertheless intact.” Ferragu added, “[W]e would be buyers again, but only on prolonged weakness.”

NewStreet Research’s downgrade of Nvidia was quickly followed by good news from another analyst. On Monday, UBS analyst Timothy Arcuri raised his 12-month price target to $150 from $120 and maintained a buy recommendation on the stock.

Arcuri’s more optimistic outlook stems from his research on the demand for Nvidia’s soon-to-be-released Blackwell platform. He wrote, “Our recent supply chain checks confirm our prior suspicions that demand momentum for Blackwell rack-scale systems remains exceedingly robust.” Arcuri now projects Nvidia will generate 2025 revenue of $204 billion, up 12% from his previous forecast.

Which analyst is right about Nvidia?

Ferragu’s cautious price target for Nvidia matches up pretty well with the broader Wall Street consensus. The average analysts’ 12-month price target for the stock is $129.53, according to LSEG. On the other hand, 21 of the 38 analysts surveyed by LSEG in July rated Nvidia as a buy or strong buy, versus 15 who had a neutral rating on the stock. This is more in line with Arcuri’s position.

The differing views on Wall Street stem from uncertainty about how strong Nvidia’s growth will be going forward. Tremendous growth expectations are already baked into the share price. Ferragu’s downgrade reflects this. However, the demand for Nvidia’s new Blackwell chips fueled by generative AI could cause analysts to revise their growth projections — something Arcuri seems to be banking on happening.

Which analyst is right about Nvidia? We’ll have to wait and see. My hunch is that Nvidia could have more room to run than Ferragu predicts. But I agree with him 100% about the quality of the company’s business and that the stock would be an excellent buy on a sustained pullback.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

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