Nvidia slipped into the red on Wednesday, giving up significant gains despite what appeared to be impeccable results and guidance. That left investors and traders scrambling to figure out why. One analyst may have the answer. Deutsche Bank was the only major Wall Street investment bank on Wednesday to take a neutral stance on Nvidia. Analysts appear to be the only ones to comment negatively on the artificial intelligence masterpiece after data center sales grew 66% year-over-year and earnings and revenue reports exceeded consensus expectations. Ross Seymour cited one main reason: reputation. Seymour wrote that while he remains bullish on Nvidia in the long term, the current valuation reflects the fact that the incredible expectations for the next two years appear to have already been priced into the stock price. “Overall, we remain very impressed with NVDA’s continued leadership in AI computing, networking, software, and systems capabilities, and the gap with its competitors appears more likely to widen than narrow,” the analyst said. However, he added, “We believe our stock continues to be fairly valued, as our stock’s P/E of $215 already factors in earnings growth of ~85% over the next two years, implying a P/E of ~23x compared to CY27 estimates.” In other words, the stock is trading at a high multiple, even considering the impressive sales growth expectations two years from now. Using next year’s market expectations, Nvidia trades at an even higher PE of 27, according to FactSet. This comes after Nvidia stock has soared 39% this year. Seymour’s memo also included some other negatives, including Nvidia’s rapidly expanding operating spending, continued lagging sales in China, and a decline in the company’s games business, traditionally its strongest quarter. To be sure, Deutsche Bank’s $215 price target still has 15% upside. But this pales in comparison to the likes of Barclays and Bank of America, which are forecasting an even 47% rise. The Dow gave up a 700 point rally as Nvidia reversed. Traders said one reason for the market reversal was that the probability that the U.S. Federal Reserve would cut interest rates in December had decreased. But lower interest rates are seen as key to justifying the soaring price of AI stocks, so that may be why Nvidia has felt more pressure.
