Get ready for an unpopular opinion. Nvidia (NASDAQ:NVDA) is a darling of the market, which is fine to a certain extent. Yet, perhaps it’s too much of a darling now. Because so many of Wall Street’s experts are ultra-bullish and have outsized expectations for Nvidia, this would be the right time to reduce your exposure to NVDA stock.
There’s no denying that Nvidia has an essential role in the generative artificial intelligence (AI) boom as a hardware supplier. And I’ll admit that I’ve succumbed to the consensus feeling of optimism surrounding Nvidia stock.
As the bullish calls pile up, however, my contrarian instincts are sending me a warning signal. There’s an old saying that trees don’t grow straight to the heavens, and I fear that NVDA stock’s parabolic rise could come to an end soon.
NVDA Stock: Analysts Escalate Their Price Targets
When a stock goes up sharply, typically analysts engage in what I call “price target escalation.” It’s when analysts engage in one-upmanship, practically climbing over each other to announce increasingly higher price targets.
Thus, Cowen analyst Matthew Ramsay’s $500 price target on Nvidia stock almost feels like a lowball call now. Like practically every analyst, Ramsay used Nvidia’s AI connection to justify his target price:
“We expect above-consensus results and potentially another large guidance increase from NVIDIA as its datacenter business supplies the [generative] AI arms race currently taking place across hyperscalers.”
Note the high expectations that Ramsay placed on Nvidia: both “above-consensus results” and, potentially, “another large guidance increase.” Now, Nvidia evidently has the herculean task of living up to these expectations. I suspect that Ramsay’s optimism, and the optimism of Wall Street generally, has already been priced into NVDA stock.
Too Much Love for Nvidia
But like I said, a $500 price target isn’t good enough anymore. Hence, there’s a three-pack of lofty price objectives for Nvidia stock:
- Truist analyst William Stein: $545
- KeyBanc analyst John Vinh: $550
- Tigress Financial Partners analyst Ivan Feinseth: $560
- Citi Research analyst Atif Malik: a $525 base case but with a possible pathway to $600
All of these analysts cited Nvidia’s AI angle in one way or another. On that topic, Citi Research analyst Christopher Danely expects Nvidia to command “at least 90%” of the AI chip market share.
Clearly, Wall Street has lofty expectations for Nvidia. Investors also must have high expectations, as they’ve pushed the NVDA stock price so high (compared to Nvidia’s earnings) that Nvidia now has a GAAP trailing-12-month price-to-earnings (P/E) ratio of 232.87x. Meanwhile, the sector median P/E ratio stands at just 25.73x.
Consider Some Profit-Taking With Nvidia Stock
A strong majority of Wall Street analysts have issued a “buy” rating on Nvidia stock. Their price targets are getting higher and higher. Plus, Nvidia’s valuation is outsized, to put it mildly.
I still like Nvidia as a company, but contrarians and value-focused investors should be on high alert now. This is a time to consider taking profits, not adding to your position in NVDA stock. Otherwise, if there’s a deep share-price correction, you could get caught on the wrong side of the trade.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
