Artificial intelligence (AI) stocks are suddenly seeing red. The segment plunged last week after two profit declines due to ASML And Taiwan Semiconductortwo leaders in semiconductor manufacturing, triggered a massive sell-off.
On Friday, an analyst asked Super microcomputerIt is (NASDAQ:SMCI) decision not to publish preliminary recipe results, even though it had become a habit, and this led to a bloodbath. Supermicro shares ended the session down 23%, Arm holds lost 17%, and Nvidia (NASDAQ:NVDA) ended the day down 10%.
Is the AI bubble bursting, or is it just a temporary sell-off? No one knows the answer to that question, but two Wall Street analysts think two AI Actions, Nvidia and Supermicro, are both down. Keep reading to see why.
1. Nvidia: 19% drop
Nvidia is the undisputed leader of the AI boom. While OpenAI’s launch of ChatGPT kicked off the race for generative AI, Nvidia has raked in most of the industry’s profits so far, as sales of its graphics processing units (GPUs) and related components make up the backbone of the infrastructure that creates AI applications, like ChatGPT, it works.
Nvidia’s revenue has tripled in recent quarters, driven by growing demand for AI, and its profits have grown even faster. However, one analyst believes Nvidia could fall further after Friday’s selloff.
DA Davidson’s Gil Luria weighed in on Nvidia stock following the company’s February earnings report with a neutral rating and a $620 price target. That implied a 21% decline at the time, or 19% from Friday’s close.
Luria acknowledged that Nvidia has performed well and is positioned to continue to dominate the AI computing space, but he also expects the company’s competitors to catch up. The analyst sees a chance that Nvidia’s demand will decline over the next four to six quarters.
Competition is indeed coming for Nvidia, as AMD And Intel have both launched competing AI GPUs. However, it is still too early to tell if they will take significant market share from Nvidia.
Nvidia’s growth rate will certainly slow in the coming quarters as the group faces tougher comparisons, but the Wall Street consensus calls for continued strong growth. If revenue were to decline as Luria seems to imply, at least in some categories, the stock would almost certainly plunge.
2. Supermicro: 65% downside
Like Nvidia, Supermicro has been a big winner from the AI boom. The manufacturer of high-density servers, particularly suited to running AI applications, has skyrocketed since the start of 2023. Its turnover is also soaring, up more than 100%. in its last quarter.
However, not all analysts are convinced of Supermicro’s potential. Susquehanna rated the stock a Sell, with a price target of just $250 following the company’s earnings report in late January. This implies a 65% drop in the stock from its current price.
The research firm recognized the long-term growth of AI computing…
