Is Nvidia a Buy for 2024? One Analyst Sees a 15% Downside for the AI Stock

Nvidia’s shares (NASDAQ: NVDA) staged an impressive gain of over 240% in 2023, riding on the artificial intelligence (AI) wave, which many see as the most crucial technology since the internet. However, one wealth management firm, DA Davidson, does not see Nvidia expanding this momentum in 2024, predicting a drop in demand for AI services.  

DA Davidson Sees 15% Downside Risk in Nvidia’s Stock

With its unprecedented growth last year, Nvidia has won the hearts of numerous analysts on Wall Street. However, some are not so bullish that the stock can maintain that pace in 2024.

Notably, DA Davidson analysts noted to investors that Nvidia is pivotal in accelerated computing, estimating a significant compound annual growth rate (CAGR) of 20% from 2022 levels. But although the chipmaker is a leader in multiple categories, the strategists are skeptical that consensus expectations will come to fruition. 

Instead, the analysts projected a U-turn in the current uptrend within the next two to six quarters, saying the hype around AI is approaching the “trough of disillusionment.”

“While we continue to believe that generative AI is the most important transformative technology since the Internet, we do not expect the same level of investment we saw in 2023 continuing beyond 2024.”

– analysts wrote in a note.

Consequently, DA Davidson analysts started new research coverage on NVDA with a Neutral rating and a price target of $410 per share. This price suggests a downside risk of 15% from Nvidia’s latest closing price. 

“Our $410 price target is based on a 35x multiple on the $7.29 of CY24 EPS for the core company and $155 for the sandbox revenue still coming to NVDA over the next 4-6 quarters. We believe the value of this sandbox could drop considerably once NVDA growth rolls over.”

– analysts added.

Meanwhile, other industry watchers believe AI will remain a key investing theme in 2024. 

Cliff Jurkiewicz, technologist and vice president of global strategy at HR tech firm Phenom, said AI-oriented roles are yet to emerge across industries and sectors. This includes new positions like AI ethicists, curators, policymakers, legal advisors, trainers, auditors, interpreters, and more, according to Jurkiewicz. 

Establishing a dedicated team specifically for these AI-related functions can potentially bring about significant changes in a company’s financials and organizational structure.

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AI Boom Made Nvidia S&P 500’s Top Performer in 2023

The ongoing AI boom was the most important catalyst driving Nvidia’s remarkable rise in 2023. 

Because it is one of the very few companies producing chips powerful enough to power the demanding generative AI models, Nvidia attracted unparalleled demand. As a result, its sales and earnings saw breakneck growth, while its stock price more than tripled during 2023. 

With a year-to-date surge of more than 240%, Nvidia was the best-performing S&P 500 stock by some distance. As a result, the company’s market cap exceeded the $1 trillion mark, joining other tech behemoths, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN). 

What do you think about DA Davidson’s views that NVDA will likely witness a pullback this year? Let us know in the comments below.