Sentiment Could Be Turning Sour on Nvidia. Here’s Where 1 Analyst Thinks NVDA Stock Is Headed Next.

Perhaps the most important stock in the market, Nvidia (NVDA) remains a top stock I continue to watch closely.

There are a few reasons for this. Of course, as the world's largest semiconductor company, the fact that Nvidia powers the world's economy (essentially) via propping up the artificial intelligence (AI) revolution is a massive deal. Indeed, the range of opinions on where NVDA stock could be headed from here varies greatly, and we'll get to that shortly. 

That said, given the incredible volatility we've seen in Nvidia, which has held the title of the world's largest company for quite some time (see above), there's plenty to digest around this stock's recent moves. Let's dive into why one analyst thinks Nvidia could be headed much lower from here. 

More Sell Ratings Coming Nvidia's Way

Analysts at Seaport Research put forward a piece last week that was honestly pretty difficult to read, particularly for bulls. That's because many of the issues these analysts noted align with the idea that Nvidia's balance sheet has growing issues, and there could be plenty of turbulence underneath the surface for investors.

Now, that's not to say that Nvidia's underlying fundamentals don't look strong right now. They do. Looking at the summary above, Nvidia's forward price-earnings multiple of just 35 times is well below the average for the sector. That's important, considering the weighting Nvidia has in most indices (implying the rest of the stock market is, on average, more richly valued than the leader). 

That said, concerns around a “circular-financing boom” put forward by Seaport analysts in their note are one of the issues bears have contended could lead to issues around earnings quality down the line. The thinking is that the more Nvidia finances the companies that buy its chips (either directly via equity or debt, or simply allowing for financing of these increasingly expensive chips), that could mean that the demand investors are seeing isn't real. At least, not to the extent that Nvidia's earnings releases suggest.

I think there could be something to that. Indeed, the sort of circular activity we saw in the dot-com boom among some tech companies, or in the utility buildout surrounding the rise of the internet, did lead to disaster. And I'm not suggesting Seaport is completely buying into this idea, but I've read plenty from a range of analysts that have at least pointed out that circular financing in any time or sector isn't generally a positive when we look at the overall health of any major trend. 

From here, I think data center construction, and the ability for Nvidia's clients (many of the largest tech companies) to continue to support massive construction plans, could be what investors will be watching more closely than Nvidia's earnings reports. That's what I think we're seeing in this recent selloff in NVDA stock, which is now down around 17% from its recent all-time high.

Where Do Other Analysts Think Nvidia Is Headed?

The good news for investors in Nvidia who are willing to look past these concerns is that most analysts on Wall Street tend to have a similarly bullish stance on the world's leading chipmaker.

The consensus price target for NVDA stock sits a little higher than $300 per share, implying more than 50% upside from here. Even more notable is the high target on the street of $500 per share, which suggests Nvidia could more than double over the course of the next year, if all goes well.

I'm not so sure that those bullish expectations will come to bear, at least not this year. Sentiment has weakened considerably, given the inflationary pressures on consumers and growing concerns around the business models of the companies that support the artificial intelligence revolution.

For now, I'm not willing to put my own “sell” rating on Nvidia, but I'm cautious. To me, NVDA stock looks more like a hold right now than anything else.