Nvidia (NVDA) shares declined 3.2% to $204.12 on Monday, underperforming the broader market as the Nasdaq Composite fell 1.4%. However, the chipmaker fared better than the wider semiconductor sector, with the PHLX Semiconductor Index dropping 4.8%.
Despite Monday's pullback, Nvidia has significantly lagged the chip sector this year. Through Friday's close, the PHLX Semiconductor Index surged 75%, while Nvidia shares gained only 12%. This divergence has prompted analysts to reassess the stock's valuation and growth prospects.
AI Infrastructure Spending Bolsters Demand Outlook
Meta Platforms announced Monday it would increase spending on its Louisiana data center to over $50 billion, reinforcing expectations of sustained demand for Nvidia's hardware. Meta, alongside SpaceX, is a major Nvidia customer, using its chips to train advanced AI models. John Belton, portfolio manager at Gabelli Funds, noted in a Barron's report that fragmentation among large language model (LLM) developers could benefit Nvidia. "Fragmentation in the LLM space is a good thing for Nvidia," Belton said, adding that a winner-take-all market would be less favorable long term.
For more on Meta's AI strategy, see Nvidia Rises 2% as Meta's Custom AI Chip Seen as Complement, Not Threat.
Wall Street Remains Bullish Despite Underperformance
Analysts continue to see upside in Nvidia. According to FactSet, the stock trades at a forward price-to-earnings ratio below 20, while the average analyst price target stands at $313.39—implying roughly 50% upside from current levels. Mizuho Securities analyst Vijay Rakesh reiterated an Outperform rating and $300 price target on Saturday, citing an expected $1.2 trillion in data center capital expenditures next year.
Tech strategist Dan Ives dismissed the recent weakness as a "speed bump" during a CNBC interview. He attributed the stock's lag to a rotation toward memory stocks, calling it the "shiny new toy" effect. "You've seen so many of these names, when the ones that are actually at the center, whether it's the hyperscalers or Nvidia… those are actually the ones, to some extent, almost in the penalty box," Ives said.
For context on the rotation, read Nvidia Lags AI Peers as Rotation to Memory, Infrastructure Plays Accelerates.
Valuation, Earnings, and Supply Constraints
Ives highlighted a disconnect between market performance and the companies driving AI development. "The reality is, there's one chip in the world fueling the AI revolution, that's by the godfather of AI the revolution, Jensen of Nvidia," he said. According to Koyfin data, Nvidia's forward P/E has recovered to around 21.2 after falling to 19.6 last week—levels not seen since January 2019.
Ives also stressed the importance of the upcoming earnings season for assessing AI monetization. "When you look at memory, where is memory with Nvidia? Where's memory without hyperscalers? This all plays into what's going to be a crucial earnings season in Q2 for monetization," he said. He added that chip demand continues to far outstrip supply, estimating a demand-to-supply ratio of 15-to-1.
For a broader perspective on AI investment risks, see Taiwan Central Bank Warns of AI Overinvestment Risk to Nvidia's Growth.
While Nvidia's stock has struggled to keep pace with the broader chip rally, analysts remain confident that AI infrastructure spending and supply constraints will drive future growth. The upcoming earnings season will be a key test of whether the market's optimism is justified.
This article is for informational purposes only and does not constitute financial advice.
