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Nvidia (NVDA, Financials) received a downgrade from Summit Insights Group following its fourth-quarter earnings report, marking the only negative rating from a Wall Street firm despite the company's strong financial performance.
Driven by demand for artificial intelligence gear, the chipmaker revealed in the current quarter a 78% rise in revenue and an 80% increase in profit. But downgrading Nvidia from Buy to Hold, KinNgai Chan, an analyst with a 70% success history, raised worries about the sustainability of its expansion path.
Chan cautioned that the market for artificial intelligence is changing as AI inference calls for less processing capability than AI model development. This tendency would lower demand for Nvidia's high-performance processors, which have the main engine of the company's growth. Although data center capital expenditures for artificial intelligence training remain strong, Chan thinks Nvidia's price no longer offers a good risk-reward ratio.
Further influencing the cautious attitude are worries about growing competitiveness in the artificial intelligence business. Operating on older and less costly H800 processors, the DeepSeek AI model developed in China for $6 million indicates possible issues to demand for Nvidia's most expensive graphics processing units.
Investors reacted to the downgrading with a stock price drop. Nvidia shares were trading at $118.94 as of Monday, 11:03 AM GMT-5; down 4.8%, for the day. The most recent average price estimate of $179.77 points to a 51.1% upside from present levels.
This article first appeared on GuruFocus.