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Investing.com -- Worries that the AI trade has ended feel “a little premature,” according to Bernstein analysts, who maintain a positive outlook on Nvidia stock.
Following years of eye-popping returns, the AI chip giant’s shares have slowed down this year, retreating around 15% year-to-date. NVIDIA Corporation (NASDAQ:NVDA) has underperformed the broader semiconductor market, which saw a pullback of around 85%, and the S&P 500, which lost 1%.
Nvidia plummeted more than 8% Monday, with the stock now trading at approximately 25x next twelve months (NTM) earnings, the weakest in a year and near a 10-year low.
“In fact, the stock now trades BELOW parity relative to the SOX (something we have seen only once or twice in the past decade) and at only a slight S&P premium, the lowest they have been since 2016,” analysts led by Stacy A. Rasgon said in a note.
According to them, this de-rating is "a little stunning," especially at the start of a product cycle. The firm highlighted that Nvidia’s Blackwell product revenues of $11 billion all shipped in January, signaling that supply constraints are easing and demand is expected to exceed supply in the coming quarters. Additionally, capital expenditure numbers from Nvidia’s customers continue to rise.
Also, “it is becoming increasingly clear that DeepSeek is not doomsday for AI demand,” analysts added.
While regulatory risks loom, with AI diffusion rules set to take effect in May and potential further bans in China, Bernstein points out that Nvidia’s sales in China, although at record levels, represent the lowest percentage of revenue in the last decade.
The investment bank believes that any disruptions from new licensing requirements for Nvidia hardware purchases will be short-term. Even with the possibility of an H20 ban, which Bernstein deems unlikely due to performance disparities with Chinese alternatives, the impact on Nvidia’s earnings per share (EPS) would be limited.
“For what it is worth, every ~$10B would account for ~25 cents in NVDA EPS; a full China datacenter ban would likely impact EPS ($5-6 baseline?) by mid to high single digits , with the stock already pulling back by much more than that,” analysts explained.
“Nevertheless, worries that the AI trade is “over” feel a little premature to us, and valuation is getting increasingly attractive,” they added.
While the sentiment around the AI stocks may have somewhat waned, multiple catalysts remain, including rising spending intentions, the beginning of a new product cycle, and the upcoming GTC event.
Historically, buying Nvidia stock at 25x earnings or lower has yielded a significant return, with limited downside risk.
“We could soon be so back,” analysts concluded, reiterating an Outperform rating and the price target of $185 on Nvidia stock.