Can Nvidia's stock become a safe haven as Wall Street rethinks the AI trade?

By Britney Nguyen

Investors favored flashier AI plays earlier this year, but some analysts say Nvidia's dependability could now hold more appeal

Nvidia, led by CEO Jensen Huang, has seen its shares climb about 14% so far this year.

Nvidia's stock has risen 14% this year - barely more than the S&P 500, and a relatively muted move in light of the big artificial-intelligence gains elsewhere in the market.

But the AI trade has evolved since earlier in the year, when investors were trying to find fresh ways to bet on a furious cycle of spending on chips and power. Now, Wall Street is taking a more cautious approach, looking more closely at the debt underpinning the AI boom and whether that stands to derail big growth projections that stretch years into the future.

In this sort of market environment, could Nvidia's stock (NVDA) have a new, more defensive appeal to investors? Seaport Research analyst Jay Goldberg asked Thursday if the stock could become "a safe haven in a sea of uncertainty" as the sector experiences more volatility.

Goldberg, for his part, isn't ready to recommend Nvidia's stock. He's the only analyst listed on FactSet who rates Nvidia at sell, and he still worries that it faces mounting pressures. The semiconductor market is more competitive now than before, he noted, and the company's close financial relationships with some of its customers could come back to bite it.

But other analysts lend more credence to the idea that Nvidia's stock may have fresh shine in a market where investors are looking to reduce their risk.

Nvidia "is trading like a value stock, but the growth is astronomical," Jamie Meyers, a senior analyst at Laffer Tengler Investments, told MarketWatch.

He expects the shift from Nvidia's Blackwell platform to its upcoming Rubin platform to drive "ridiculous growth in sales," while the underlying fundamentals of strong AI demand will continue to improve.

In Meyers's view, that makes Nvidia one of the "more defensive tech plays" with more market volatility expected ahead.

While Nvidia's stock isn't as safe as traditional safe havens like Treasury bonds BX:TMUBMUSD10Y, everything's relative. If you want to stay exposed to the AI trade but play the trend more safely, Nvidia's stock "can be a clean place to hide, as it's selling the infrastructure that underlies competing strategies," Jake Behan, the head of capital markets at Direxion, told MarketWatch.

While frontier AI labs and major cloud-services providers compete to make and serve the best models, at the end of the day, their heavy spending benefits Nvidia, Behan said in emailed comments.

Hendi Susanto, a portfolio manager at Gabelli Funds, noted that Nvidia has a dominant position in the chip market, visibility into future demand and strong long-term earnings potential. Those factors make its current valuation attractive for investors, he said in emailed comments.

Nvidia's stock currently trades at about 15 times estimates for its earnings per share over the next 12 months. That makes its stock the third cheapest within the PHLX Semiconductor Index SOX, according to Dow Jones Market Data.

But Seaport's Goldberg has some valuation concerns about the broader AI ecosystem, specifically related to neocloud companies that purchase and rent out Nvidia's graphics processing units.

"Any valuation-modeling exercise for the neoclouds shows that their terminal value is almost entirely driven by long-term capex," he said, referring to capital expenditures, or spending put toward long-term assets like chips. "At some point, that needs to taper down for the neoclouds to have any value."

Nvidia has a tight relationship with CoreWeave (CRWV), a leading neocloud company, but investors have grown concerned about the financial positions of neoclouds, which have borrowed a lot of money. Goldberg wonders what all that means for Nvidia.

The chip maker needs to continue rolling out products, raising prices and offering attractive financing packages, he said. However, that could lead the neoclouds into even more debt and drive more competitive pressure. "If the neoclouds fail to lift off, that doubles back on Nvidia with reduced sales and even more reduced margins," Goldberg said, referring to a key measure of profitability.

The Seaport analyst has other concerns as well, including whether labor and power shortages will hinder the buildout of AI infrastructure. While there's 55 gigawatts' worth of compute power planned for next year, that number could potentially be limited to between 20 and 25 gigawatts.

Nvidia also "risks overtaxing its balance sheet," Goldberg said, pointing to about $250 billion in commitments it made in the last quarter. While the company can afford to take on heavy spending, "it is also clear they are just [getting started]," he said.

And the market for computing power is bound to become saturated, Goldberg said, adding that he thinks the neoclouds that Nvidia currently supports will end up relying on the company as a backstop when demand slows down. At the same time, waning interest could lead to Nvidia's cash flow to dry up. That's not a risk for the near term, Goldberg noted, but it's still something to keep in mind.

Nvidia's stock could benefit over the next six months as its chip-making peers run into supply constraints, Goldberg added, but he views its financing deals with neoclouds as a sign the company feels increasing competitive pressure.

-Britney Nguyen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-23-26 1419ET