Analysts Are Talking About These 10 AI Stocks

3. NVIDIA Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 193

Doug Clinton from Deepwater Asset Management said in a program on CNBC that the focus in the AI industry would shift to custom silicon chips from hyperscalers.

“If you look at just the AI trade relative to the dot trade, people often make parallels. Sometimes they’re useful, and in this case, you look back to the dot era. Cisco, I think, was sort of the poster child. NVIDIA Corp (NASDAQ:NVDA) is our poster child today, and it is generally, I think, a barometer of just how people are thinking about the trade.

So what I think we could see happen is at some point next year—and again, NVIDIA Corp (NASDAQ:NVDA) is still a top holding for us—but at some point, I think you could see NVIDIA Corp (NASDAQ:NVDA) maybe falter a little bit. Some of these other names, like a Broadcom or like a Marvell, might pick up a little bit more momentum.

The sentiment then may be that, “Hey, the AI trade’s over, you know, NVIDIA Corp (NASDAQ:NVDA) is done, and therefore it can’t keep going.” I think that would be a mistake, though, because the AI trade is not just about Nvidia. It’s about many other companies.”

Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.

Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.

Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology. Reportedly, technology giant Apple (AAPL) will be a consumer of Amazon’s new silicon.

Manole Capital Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:

“As of this publication, Nvidia is up roughly 150% year-to-date. NVIDIA Corporation (NASDAQ:NVDA) was the largest gainer in the S&P 500 last year and has more than tripled in value over the last year. It hit an eye-opening market capitalization of $3 trillion in June, less than four months after it eclipsed the $2 trillion mark. Enthusiasm for everything AI-related, especially for the primary chip maker whose products are essential to powering AI technology, continues to fuel the market. Last quarter, and for the fifth consecutive quarter, Nvidia reported sales and profits that blew past Wall Street expectations. The stock rose +37% in the second quarter alone.”