Nvidia stock slips 3%: why are analysts still bullish?

Nvidia NVDA stock declined on Monday, even as fresh announcements on artificial intelligence infrastructure spending reinforced expectations of continued demand for the chipmaker's products.

Shares of Nvidia were down 3.2% at $204.12 in trading.

The decline broadly tracked weakness in the wider market, with the Nasdaq Composite falling 1.4%. However, Nvidia outperformed the broader semiconductor sector, as the PHLX Semiconductor Index fell 4.8%.

Despite Monday's move, Nvidia has significantly lagged the broader chip sector this year.

Through Friday's close, the PHLX Semiconductor Index had gained 75%, while Nvidia shares were up just 12%.

Meta expands AI spending as Nvidia demand outlook remains strong

The latest AI infrastructure announcement came from Meta Platforms, which said on Monday it would increase spending on its Louisiana data center to more than $50 billion.

Meta, alongside SpaceX, is one of Nvidia's major customers and uses the company's hardware to train its latest artificial intelligence models.

John Belton, portfolio manager at Gabelli Funds, said in a Barron's report continued competition among AI model developers could benefit Nvidia.

“Fragmentation in the LLM [large language model] space is a good thing for Nvidia. While they still have an opportunity to grow share with [Claude developer] Anthropic, it isn’t necessarily a great thing for Nvidia longer term if the model-as-a-service space starts to look like a winner take all market.”

Wall Street also remains broadly optimistic on Nvidia despite the stock's relative underperformance.

According to FactSet, the company now trades at a forward price-to-earnings ratio of less than 20 times, while the average analyst price target stands at $313.39.

Mizuho Securities analyst Vijay Rakesh reiterated an Outperform rating and a $300 price target on Saturday, arguing that Nvidia would benefit from an expected $1.2 trillion in data center capital expenditures next year.

Dan Ives calls Nvidia weakness a "speed bump"

Tech strategist Dan Ives also expressed confidence in Nvidia during an interview with CNBC, dismissing the recent weakness in the stock.

According to Ives, investors have recently shifted their attention toward memory stocks, creating what he described as the "shiny new toy" effect.

“You’ve seen so many of these names, when the ones that are actually at the center, whether it’s the hyperscalers or Nvidia… those are actually the ones, to some extent, almost in the penalty box.”

Valuation, earnings and supply remain key focus

Ives argued that there is a disconnect between market performance and the companies driving AI development.

“The reality is, there’s one chip in the world fueling the AI revolution, that’s by the godfather of AI the revolution, Jensen of Nvidia.”

According to Koyfin data, Nvidia's forward price-to-earnings ratio has recovered to around 21.2 after falling to 19.6 last week, levels last seen in January 2019.

Ives also pointed to the importance of the upcoming earnings season in assessing AI monetization.

“When you look at memory, where is memory with Nvidia? Where's memory without hyperscalers? This all plays into what's going to be a crucial earnings season in Q2 for monetization.”

He added that demand for AI chips continues to exceed available supply.

“I continue to see chip demand far outstripping supply,” estimating the demand-to-supply ratio at “15-to-1.”