Wall Street wants you to keep questioning Nvidia
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Illustration: Brendan Lynch/Axios
Nvidia reports third-quarter earnings on Wednesday as its stock flirts with correction territory — a roughly 10% drop from a prior peak — and investors are wary of its sky-high valuation.
Why it matters: Wall Street strategists say: Let them. The more doubt, the more room stocks like Nvidia have to run in this bull market.
What they're saying: "The more skepticism, the better," Jake Manoukian head of investment strategy at J.P. Morgan Private Bank, tells Axios. "It would be a worse sign for us if, like, everyone was all in. That's what a bubble feels like."
Zoom in: As the naysayers worry about valuations, the bulls make their case.
- Nvidia has a "central and secure" role in the AI investment boom, Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, writes in a note.
- The chip giant is expected to generate more than $70 billion in net income in 2025 and has multiyear capacity commitments as well as more demand than it can meet, indicating future upside.
- Hyperscaler cloud revenue is also expected to continue to rise heading into 2026 as more firms adopt AI, according to Citi analyst Atif Malik.
The other side: The bears are focused on several potential headwinds.
- The biggest customers of Nvidia are the hyperscalers that have been increasingly taking on debt to fund their lofty AI ambitions.
- Demand for Nvidia chips is strong, as tech companies fight to win the AI race. But what happens if they can't afford the battle anymore?
- At 31 times forward earnings, the share price of Nvidia isn't trading at dot-com bubble highs, which were closer to 40, but it keeps inching up.
- There is U.S.-China relations, geopolitical concerns, the macro backdrop, questions about the role of retail pushing up stocks…We could go on.
State of play: Over 70 analysts have buy ratings on Nvidia and only one sell rating, per Bloomberg. Hedge fund managers paint a more bearish picture.
- Several hedge funds sold their stakes in Nvidia in the third quarter, including Peter Thiel's fund Thiel Macro LLC.
- Michael Burry of "The Big Short" fame disclosed a bearish bet on the stock before announcing his hedge fund retirement.
- A Bloomberg analysis of more than 900 13F filings from hedge funds found an even split of bullish and bearish positions on the chipmaker, indicating Wall Street is mixed on how to view and trade the stock.
Zoom in: Even if other companies start to take share from Nvidia, that's fine with the bulls, who see enough demand to go around.
- "AMD is starting to take some share from NVDA," according to Tengler. "We actually think a broadening out for the group is good for the market and good for the AI trade."
The bottom line: The 2026 outlook season on Wall Street is here, and so far, none of the major banks see an AI bubble in sight. But if people want to keep asking about it, that's no problem for them.
- They'll keep buying in the meantime.
