New Street Research analyst Pierre Ferragu stated that Nvidia’s rapid rise since the beginning of last year has reached a point where there is no room for further increase. Therefore, he downgraded the stock’s rating from “buy” to “neutral” and set a one-year target price of $135 per share. If what the analyst says is true, could it crash Bitcoin?
(Preface:
Bitcoin, NVIDIA stock price correlation hits new high in nearly a year! Could an AI bubble burst bring down the coin market?
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(Background supplement:
The Wall Street Journal: U.S. stocks overly reliant on NVIDIA, Nvidia becomes the biggest ticking time bomb
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Amidst the AI craze, Nvidia, led by Jensen Huang, has seen its stock price soar by more than 161.22% this year, with a market value exceeding $3.1 trillion, briefly surpassing Apple and Microsoft to become the world’s largest company by market value. It also drove the impressive performance of the Taiwan stock market, with the Taiwan Weighted Index reaching a new high of 23,556.59 points this week, and TSMC breaking through the thousand-dollar mark.
New Street Downgrades Nvidia Rating
However, at this juncture, New Street Research analyst Pierre Ferragu downgraded NVIDIA’s rating from “buy” to “neutral.” Ferragu stated that the stock, after rising nearly 240% in 2023 and soaring 154% this year, has reached “full valuation.” He believes that Nvidia’s rapid rise since the beginning of last year has reached a point where there is no room for further increase.
Ferragu pointed out that the only possible room for increase exists in a bull market scenario, i.e., a significant improvement in prospects after 2025, but currently, there is not enough confidence in this. He also emphasized that although the quality of NVIDIA’s brand remains unchanged, if the current market situation does not improve, its brand valuation may face the risk of being downgraded.
However, Bloomberg data shows that nearly 90% of analysts still recommend buying NVIDIA stock, making Ferragu’s downgrade rating seem particularly solitary. But it is undeniable that NVIDIA’s current trading price is more than 22 times its expected revenue over the next 12 months, making it the most expensive stock in the S&P 500 index, and valuation issues are therefore frequently scrutinized.
New Street Research ultimately set NVIDIA’s one-year target price at $135 per share, 4% lower than the company’s historical high of $140.76, but 7.3% higher than last Friday’s closing price of $125.83.
Will it crash Bitcoin?
It is worth noting that Coindesk has reported in recent years that the high degree of synchronous fluctuation between Bitcoin and NVIDIA has raised concerns among market experts. Experts believe that if the AI bubble bursts, it could drag down the cryptocurrency market.
In the early part of the year, from March 15, Bitcoin rose by 60%, and NVIDIA by 77.5%. The 90-day correlation coefficient between the two at that time had risen to 0.86, the highest level since May 2023. A correlation coefficient of over 0.8 indicates that Bitcoin and NVIDIA are highly correlated and tend to fluctuate in sync. Therefore, if NVIDIA’s stock price starts to plummet, there is a high probability that Bitcoin will also fall in tandem.
However, these data occurred before March this year, and since then, NVIDIA has continued to reach new highs, while Bitcoin has stagnated and retreated more than 26% from its high point due to negative news such as the German government and Mt.Gox repayments, and the correlation between the two has greatly diminished.
However, if NVIDIA does indeed plummet, it is expected that in the case of limited hot money, the performance of Bitcoin, and even global risk assets, may also be dragged down.
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