Concerns that the artificial intelligence (AI) boom is fading might be premature, according to Bernstein analysts. Despite a 15% year-to-date decline in Nvidia (NASDAQ: NVDA) shares and a sharp 8% drop on Monday, Bernstein maintains a bullish stance on the AI chip leader.
Nvidia Stock at a Discount: A Rare Opportunity?
- Nvidia is now trading at 25x next twelve months (NTM) earnings, marking its weakest valuation in a year and near a 10-year low.
- The stock has also dipped below parity relative to the Philadelphia Semiconductor Index (SOX)—a scenario seen only once or twice in the past decade.
- The current valuation premium over the S&P 500 is the lowest since 2016.
Bernstein sees this as a rare buying opportunity, emphasizing that historically, buying NVDA at 25x earnings or lower has resulted in significant returns with limited downside risk.
AI Demand Still Strong: Blackwell Product Cycle & Capital Expenditures
Easing Supply Constraints
- Nvidia’s Blackwell AI chip revenues hit $11 billion in January, showing that supply constraints are easing.
- The firm expects demand to exceed supply in the coming quarters.
Growing AI Investments
- Nvidia’s customers are increasing capital expenditures, signaling sustained AI infrastructure demand.
- Fears that AI demand is fading—especially with competition from firms like DeepSeek—are overblown, according to Bernstein.
Regulatory Risks: China Exposure is Manageable
Concerns over AI diffusion rules and potential further bans in China have weighed on sentiment. However:
- Nvidia’s China sales, despite reaching record levels, now account for the lowest percentage of revenue in the past decade.
- Even in the event of an H20 chip ban, Bernstein expects a limited EPS impact (~$0.25 per $10 billion lost revenue).
- A full China data center ban could hit EPS by mid to high single digits, but the stock has already pulled back by a much greater margin.
Catalysts Ahead: AI Trade Not Over Yet
Bernstein sees multiple catalysts for Nvidia in 2024, including:
\u2705 Rising AI-related spending across cloud and enterprise sectors.
\u2705 The start of a new product cycle, which typically drives demand.
\u2705 The upcoming GTC event, where Nvidia could unveil further innovations.
With these tailwinds, Bernstein reiterates its Outperform rating on NVDA with a $185 price target, implying significant upside potential.
Final Thoughts: A Dip Worth Buying?
While Nvidia has faced a rough start in 2024, Bernstein sees the current pullback as an opportunity rather than a warning sign. The AI boom is far from over, and as Nvidia’s valuation becomes increasingly attractive, long-term investors may find this a compelling entry point.
Stay Updated with Real-Time Market Data
For up-to-date insights on Nvidia’s financials and valuation metrics, check out:
As Nvidia’s new product cycle gains momentum, this may be a key moment to watch AI stocks closely.
