Nvidia (NVDA -0.80%) shares have returned 35% year to date, while Intel (INTC -0.20%) shares have increased 21%. Both semiconductor companies stand to benefit as artificial intelligence systems proliferate, creating a need for more advanced chips. But certain Wall Street analysts recommend selling the stocks:
- Jay Goldberg at Seaport Research has set Nvidia with a target price of $100 per share. That implies 45% downside from its current share price of $182.
- Kevin Cassidy at Rosenblatt Securities has set Intel with a target price of $14 per share. That implies 42% downside from its current share price of $24.
Here's what investors should know.
Image source: Getty Images.
Nvidia: 45% implied downside
Nvidia reported first-quarter financial results that beat expectations on the top and bottom lines. Sales rose 69% to $44 billion due to robust demand for artificial intelligence (AI) infrastructure. Non-GAAP net income increased 33% to $0.81 per diluted share. Earnings would have grown more quickly had it not been for new export restrictions. But those export restrictions have since been reversed and investors have reason to be optimistic.
Nvidia has a near-monopoly in data center GPUs, chips that accelerate demanding workloads like training AI models and running inference on AI applications. The company also enjoys a strong presence in AI networking gear, and its nascent software and services business is building momentum. That sets the company up for sustained growth in the years ahead.
Grand View Research estimates AI spending across hardware, software, and services will increase at 35% annually through 2030. Mike Gualtieri at Forrester Research says "modern AI wouldn't be possible" without Nvidia GPUs. And Fundstrat analyst Tom Lee says Nvidia is one of the most important companies in the world because it sits at the epicenter of the AI revolution, which itself is reshaping the global economy.
Wall Street expects Nvidia's earnings to increase at 29% annually over the next three years. That consensus puts the current valuation of 59 times earnings somewhere between cheap and expensive. But I doubt the stock will fall 45% unless something goes terribly wrong with the production of its next-generation Rubin GPU. In fact, I think patient investors that lack Nvidia exposure should consider buying a few shares today.
Intel: 42% implied downside
Intel reported disappointing second-quarter financial results. Sales remained flat at $12.9 billion despite other semiconductor companies reporting tremendous demand for artificial intelligence chips. Gross profit margin narrowed 8 percentage points and the GAAP net loss widened to $0.67 per diluted share, its sixth consecutive quarterly loss. Investors have little (if any) reason to think the future is brighter.
Intel in 2021 announced its intention to become a major provider of foundry services in the U.S. and Europe, but the company has encountered numerous setbacks. The 18A process node, initially slated for high-volume production in the first half of 2025, has yet to launch and may be delayed until next year. Also, chip production in Ohio was supposed to begin as early this year, but that project is now at least five years behind schedule.
President Trump recently announced an unusual deal with Intel CEO Lip-Bu Tan, whereby the U.S. government acquired a 10% stake in the company for $8.9 billion. But Jay Goldberg at Seaport Research says Intel needs another $20 billion to bring its 14A process to market, the successor to the 18A process. He also commented, "The U.S. government does not have a great track record when it comes to investing in companies."
Here is the bottom line: Intel still dominates the CPU market, but the company has lost substantial share in data center servers and personal computers in recent years. That the U.S. government has taken a stake may afford the company credibility, but does not erase its abysmal track record. The deal also raises questions about how much influence the government will wield.
Personally, I think Intel stock could fall more than 40% if the company fails to introduce its 18A process this year, or else if it fails to win enough customers to make its 14A process economically sensible. Investors should avoid the stock and shareholders should consider selling.
