Nvidia downgraded to Neutral by New Street Research. Here's why

Nvidia (NVDA) shares dip in pre-market trading — opening lower in Friday's regular trading hours — after New Street Research downgraded the chipmaker's stock to a Neutral rating. The Morning Brief team examines New Street Research's analyst note that cites "limited further upside" for the semiconductor titan.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video Transcript

Shares of NVIDIA slightly in the red.

The company has been bouncing back this week after a volatile period.

NVIDIA did get hit with a downgrade this morning from New Street research analysts at the firm saying they see limited further upside and are downgrading the stock from buy to Neutra well bred, everybody who's trying to be a hero on NVIDIA.

All I know is I go back to a recent JP Morgan story and it is very uh report is very simple.

Demand continues to outstrip supply foreign video chips and as long as that continues to happen, there might be some volatility in the name.

Uh How do you dump this stock?

I mean, they're a beast they're on on a path to potentially $10 trillion market cap.

You know, it's not a stock particularly, that's just one that you talk about where it's just ok. Yeah, just trade this name.

No, it's it is an investment decision that has now been regarded as such for a long term kind of hold type of mindset.

It's not something that you're trying to day trade at this juncture even though it got a little bit more affordable after this, the, uh, stock split that took place in a couple weeks back.

Last thing you want to hear.

So you call up your money manager, uh, and they tell you, hey, I hope you had a great day, July 4th.

Yeah, I'm gonna be lightning load on a video.

Hell wants to hear that.

I mean, that is the great way to lose your job and lose client money.

I mean, that is, it's tough to sell stock that everybody is rightfully very bearish on for strong fundamental reasons.

I mean, the A I chip roll out.

This is not late nineties.com stuff with companies not making any money, this is real stuff, real technology.

And this company continues to be uh the leader by, by years, I mean, by years they're leading other companies.

Well, the interesting kind of annexation or at least.com bubble analogy that NVIDIA has been drawn to time and time again now is actually Cisco.

And if you go back and take a look at their stock chart, one of the things that you'll see that is quite similar here is this hockey stick type run up during the.com uh era and then it had to grow into its valuation.

Now, of course, it declined precipitously in the aftermath of that bubble bursting.

But then eventually over years was able to grow into that evaluation because people could see the applications and the use cases for the technology that they were bringing to the market.

It's the same thing with NVIDIA here.

We just don't have a million chip data center right now because it's not built up yet.

And so that's perhaps the next part of this generative A I trade.

When we talk about picks and shovels, it might literally be picks and shovels building up some of these data centers, picks shovels, putting some of the electricity in the ground or overhead or what.

However, you're building that grid out in order to make sure those data centers have the necessary utility and power that they need.

No.

Right on Brad.

And you know, I think you have to be thinking about, it's not just the NVIDIA trade, it's the whole ecosystem.

You had a great conversation on my podcast opening bid, cheap plug for myself there uh with Brooke Dane, uh portfolio manager at Goldman Sachs Asset Management.

You know, his I think view was sure you can continue owning video, but think about some of the companies that are trying to compete with the likes of NVIDIA over the next 5 to 10 years.

It's a Marvel, it's a KL A, it's a micro.

None of these companies are really going to take material market share from NVIDIA today.

But as long as they could sell that sizzle to investors, those stocks might rise along with NVIDIA, I listen to your podcast every time.

I appreciate that.

I mean, that's it right next to it.

So you don't download it.

You don't download it.

I mean, look, I was in the pilot episode and then I never got invited back.

I'm waiting to come back.

You can come back any time you want.

Ok.

Done deal tomorrow.

Yeah.

Sounds great.

Yeah.