The hottest stock in the entire S&P 500 in the past two years may have finally run out of steam. Nvidia Corporation (NASDAQ:NVDA) is up an incredible 357.6% in the past two years. Unfortunately for NVDA stock bulls, the tide may have turned in 2017. While the S&P 500 has continued its Donald Trump rally and surged to new all-time highs, NVDA stock is down 5.4% year-to-date.
The company has delivered some strong growth numbers in the past two quarters. But the roadblock for NVDA shares has likely been the growing number of Wall Street firms that are jumping ship on the stock. In late February, Nomura and BMO Capital became the latest in the parade of firms to downgrade the stock.
It’s difficult to maintain bullish momentum amid a stream of negative headlines from Wall Street.
The Simplest Explanation for NVDA Stock
For investors trying to figure out why Wall Street is so down on NVDA stock, it’s always best to start with the simplest possible explanation. Nvidia is certainly overheated for the time being. It’s difficult for any $50 billion-plus company to maintain the type of momentum that Nvidia has had in the past two years without some consolidation along the way.
Analysts recognize that NVDA investors need a chance to take profits on the trade.
The company also needs a chance to let its impressive fundamental growth metrics catch up to its mind-boggling market cap growth. Nvidia’s Q4 revenue growth was 55% year-over-year. That growth clip is extremely impressive. Still, it’s well short of the 225% leap in Nvidia’s market cap in that time.
What Wall Street Has to Say About NVDA Stock
As it turns out, Wall Street’s concerns extend beyond simple valuation. Nomura issued one of the recent downgrades that sent NVDA stock tumbling. Analyst Romit Shah expressed concern about the durability of the company’s gaming growth and cut NVDA stock to “reduce.”
“We believe consensus is underappreciating a slowdown in gaming,” Shah wrote. “Investors should recognize that the market’s enthusiasm for Nvidia’s emerging businesses [in data centers and automotive] is historically short-lived.”