Nvidia Faces Potential Headwinds: Analyst Downgrades Stock Amid AI Efficiency Concerns

Nvidia's Risk-Reward Proposition Is Much Less Favorable, According to 1 Wall Street Analyst | The Motley Fool

When you've been on a run like Nvidia (NVDA 3.97%) has over the past few years, it's almost always because investors see massive growth ahead. For a company positioned as the picks-and-shovels play for the entire artificial intelligence (AI) industry, many still think the sky is the limit for the AI chip king. However, one Wall Street analyst thinks that may no longer be the case and is downgrading Nvidia from a buy rating to a hold with no price target listed. While Summit Insights analyst Kinngai Chan expects Nvidia to keep beating consensus estimates in future earnings reports, especially after strong fiscal 2025 fourth-quarter results, he's concerned "NVDA's outperformance and growth could decelerate into 2HFY26 as supply of NVDA's GPUs catches up to industry demand." Chan also pointed out a larger contraction in margins than expected due to the company increasing production of its next-generation Blackwell chips. The emergence of DeepSeek, a powerful AI chatbot that was supposedly built at a fraction of the cost of popular names like ChatGPT also seems to be on Chan's mind. He noted that more efficient AI training and the ability to develop AI programs with less advanced computing will adversely impact Nvidia on a medium- to long-term basis. Chan makes some good points here. While industry leaders usually find ways to adapt to new challenges, there is still a lot investors don't know about AI and its potential obstacles. There could be near-term risks from the Trump administration potentially following through with more intense export controls on chips, so caution is warranted with Nvidia, as well as with other large AI stocks that have seen their valuations soar.

Nvidia: Summit downgrades to Hold on less favorable risk-reward By Investing.com

Investing.com-- Summit Insights downgraded its rating on Nvidia (NASDAQ:NVDA) on Wednesday, stating that while the company is expected to continue doing well, especially after strong quarterly earnings, it no longer presented a favorable risk-reward scenario. Summit downgraded Nvidia to Hold from Buy. The downgrade came even as Nvidia clocked strong fourth-quarter earnings and presented an upbeat outlook for the current quarter. But the company flagged a bigger-than-expected contraction in its margins, as it ramps up production of its next-generation Blackwell series of artificial intelligence chips. Summit said that it expects Nvidia to continue outperforming market expectations, based on current market conditions and product leadership. "We are, however, downgrading the stock because we believe risk-reward is no longer favorable for the stock due to persistent high whispers numbers and rumor of entry into the PC Client MPU market," Summit analysts wrote in a note. They added that lower computing requirements from more efficient artificial intelligence programs, and a shift towards inference from training, will also have a negative impact on Nvidia's financial performance in the medium-to-longer-term. "We believe NVDA's outperformance and growth could decelerate into 2HFY26 as supply of NVDA's GPUs catches up to industry demand," Summit analysts said. Nvidia soared about five-fold in valuation over the past two years, as it rode an AI-fueled spike in demand for its advanced chips. But the stock's momentum was seen waning in recent weeks, as investors questioned just how much more space it had to run. Recent earnings prints also showed that AI was not the major revenue driver it was priced to be, especially in Nvidia's biggest tech customers on Wall Street. Doubts over Nvidia's long-term prospects also rose over the past month with the release of China's DeepSeek AI model. The model appeared to be far more efficient than popular rivals such as OpenAI's ChatGPT, sparking more questions over the need for advanced AI infrastructure. Investors appeared less than enthused with Nvidia's earnings and management commentary, with the stock falling as much as 2% in aftermarket trade. It was also nursing a series of steep losses over the past week.

Nvidia downgraded by one Wall Street firm worried about the DeepSeek effect

Nvidia 's strong earnings and guidance in its latest quarter that were reported late Wednesday didn't stop one Wall Street analyst from downgrading the stock, citing the potential impact from Chinese chatbot DeepSeek. Summit Insights Group's KinNgai Chan downgraded Nvidia to hold from a buy rating on concern that less computing power may be needed for developing large language models. "We believe risk-reward is no longer favorable for the stock due to persistent high whispers numbers and rumor of entry into the PC Client MPU market," Chan said, referring to memory protection units. "While we think the datacenter capex growth for the training market will continue to benefit NVDA, we believe the lower computing power requirement for inference while not evident today, will undoubtably have a negative impact to NVDA's financial performance in the medium- to longer-term," Chan added. Revenue continues to surge at Nvidia as the company rides the AI boom with its data center graphics processing units , or GPUs, which comprise the vast majority of the market for AI accelerators. Nvidia's revenue in the quarter ended in January rose 78%, and full fiscal-year revenue soared 114% to $130.5 billion. Chinese AI startup DeepSeek has stood out by requiring significantly less computing power compared to other large language models. In late January, DeepSeek said its V3 model required less than $6 million worth of computing power from Nvidia H800 chips.