D.A. Davidson, currently maintains one of the most conservative price targets for Nvidia, setting it at $620 while also assigning a Hold rating to the stock.
Their latest analysis raises a cautionary flag regarding Nvidia’s future prospects. They anticipate that major customers in the AI chip sector, notably tech giants like Amazon $AMZN and Microsoft $MSFT, might increasingly opt to develop their own in-house hardware solutions.
This strategic shift among key players could potentially trigger a significant cyclical downturn for Nvidia by the year 2026. Davidson’s caution is based on several factors, including the ongoing trend of AI models becoming smaller in size, which could impact Nvidia’s market position.
Additionally, they foresee a more stabilized growth trajectory in demand for AI chips, along with the maturation of investments made by hyperscale companies. Furthermore, they highlight the growing inclination of Nvidia’s largest customers to rely on their internally developed chips, thus potentially reducing their dependence on Nvidia’s offerings.
A crucial factor influencing the likelihood of this transition is the adoption rate among developers of alternative software frameworks. Nvidia’s CUDA software, widely used for building AI applications, would need to be supplanted by new platforms for the shift away from Nvidia’s chips to be fully realized.
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