Wall Street Is Focusing on These 10 AI Stocks as New Year Begins

3. NVIDIA Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 193

Paul Meeks, CIO at Harvest Portfolio Management, said in a latest program on CNBC that believes NVIDIA Corp (NASDAQ:NVDA) valuation is still reasonable despite the stock’s massive run. Here is how he explained his thesis:

“The interesting thing about NVIDIA Corp (NASDAQ:NVDA) from my perspective is people assume that the stock is grossly overpriced because it tripled in 23, working on a triple this year. But their earnings have grown even faster than that, so you have a stock that’s trading around 30 times earnings, probably grow earnings this year another 50%. I don’t know what they’ll do in the out years, but I still think it’s going to be pretty strong growth. And so NVIDIA Corp (NASDAQ:NVDA), not today, not tomorrow, but any dip—and it always comes—is probably a better buy. I would say on a PEG ratio basis, PE to growth, it’s reasonable. It’s not expensive at all.”

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.”