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Nvidia stock (NVDA) hit a new record high on Jan. 7 of $153.13 during intraday trading but eventually closed down over 6.2% as CEO Jensen Huang outlined the company’s artificial intelligence (AI) endeavors in his keynote speech at CES 2025. As we have seen with Nvidia for some time, the event turned out to be a typical “sell the news” event. As has usually been the case with Nvidia, markets start to price in events before they happen, so the actual event fails to enthuse investors unless it offers something really exciting. Simply put, “great, not good" is what markets expect from Nvidia after its breathtaking rally.
Key Risks Nvidia Investors Should Watch for in 2025
Despite yesterday’s slump, NVDA stock is still in the green to start 2025. In this article, we’ll look at some of the risks that Nvidia investors should be mindful of this year.
- Tech Companies’ Ability to Monetize AI Investments: Tech giants that were on a belt-tightening spree in 2022 have opened up their coffers to invest in AI. However, many companies are still struggling to monetize their AI investments and justify their massive capex. Investors will soon start questioning tech companies’ AI capex if they don’t see returns on investments. This might prompt tech companies to scale down their AI investments, which would invariably mean buying fewer of Nvidia’s AI chips.
- AI Price War: On a similar note, there are fears of an AI price war, with signs already visible in China. Chinese tech giant Alibaba (BABA), which had previously slashed the prices for some of its AI services, lowered prices yet again toward the end of 2024. The AI price war in China is an early sign of the complexities involved in monetizing AI.
- Trump’s China Policies: The outgoing administration of President Joe Biden imposed restrictions on sales of high-power AI chips to China. Nvidia has cautioned that U.S. chip export restrictions will jeopardize its long-term competitiveness in the Chinese market. President-elect Donald Trump has vowed to be even tougher on China, and any escalations in U.S.-China tensions under his presidency could negatively impact sentiment around NVDA stock.
- Challenge from Competitors and Pricing Pressure: While Nvidia has had a home run with its AI chips, competition should eventually catch up. Amazon (AMZN), for instance, is offering its Trainium2 AI chip which is a competitor to Nvidia. Apple (AAPL) is also using these chips to train its AI model, which is a testimony to its capabilities. Other chipmakers are also working on AI chips and could take market share from Nvidia if they achieve a breakthrough. More importantly, they could dampen the fat margins that NVDA is currently making on its AI chips. Incidentally, Microsoft (MSFT) CEO Satya Nadella created quite a chatter with his comments that the company is now no longer “chip constrained.”
Nvidia Stock Price Forecast
Of the 43 analysts covering Nvidia, 39 rate it as either a “Strong Buy” or a “Moderate Buy.” The remaining 4 analysts rate NVDA as a “Hold” and there are no “Sell” ratings. Analysts have been furiously raising the stock’s target price, and its mean target price currently sits at $175.55 which is 25.2% higher than Jan. 7 closing prices.
If Nvidia stock were to reach its Street-high target price of $220, its market capitalization would be well north of $5 trillion. The stock has been a stellar wealth creator over the last two decades and brokerages continue to believe in its growth story.
Is Nvidia Stock a Buy or Sell?
Despite intermittent corrections, Nvidia stock has been on an upward trajectory and the stock’s rally has been backed by an increase in its earnings. Consensus estimates call for the company’s revenues to rise by over 51% in fiscal year 2026 which would end in January 2026, while its per-share earnings are expected to rise by just over 41%.
Nvidia trades at 35.5x its expected earnings over the next 12 months which would appear quite attractive with a price-earnings-growth (PEG) multiple below 1x. In fact, it is the only “Magnificent 7” stock whose PEG multiple is below 1x.
AI is a generational opportunity for Nvidia and Bank of America expects revenues for Nvidia’s Data Center segment to rise above $300 billion by the end of this decade amid the continued AI boom. However, while Nvidia has several opportunities ahead, it also faces some risks that investors should watch out for. Any signs of weakness in global AI spending could trigger a severe fall in Nvidia stock as AI chips now account for the bulk of its revenues.
