Nvidia Stock Gets a Price-Target Cut. What’s Worrying Analysts.

Nvidia chips are the favored choice to power data centers for artificial-intelligence technology. (Courtesy Dell Technologies)

Nvidia was climbing early on Monday. The artificial-intelligence chip maker has suffered a dip in recent weeks in the face of competition from Broadcom and Citi analysts are cutting their price-target on the stock.

Nvidia shares were up 1.9% at $170.24 in early trading, after falling 2.7% on Friday. Among other chip makers, Advanced Micro Devices was falling 0.6% and Broadcom was up 4.7%.

Nvidia stock is down 8% over the past month through to Friday’s close, hit by a slump in the immediate aftermath of Nvidia’s earnings report. That was then exacerbated by results from Broadcom, which said it expects its clients to make more use of its hardware at the expense of Nvidia’s graphics-processing units in future.

That has led Citi analyst Atif Malik to lower his target price on Nvidia stock to $200 from $210 in a research note Monday, although he kept a Buy rating. Malik estimated Broadcom’s deals could lead to a $12 billion loss in potential sales for Nvidia.

“Importantly, our estimates do not include China which could be a source of upside if and when Nvidia restarts GPU shipments to China,” Malik wrote.

Nvidia currently has around a 90% market share in AI chips. However, many of its major customers are seeking to develop in-house processors to reduce the costs of the technology.

“We have always taken a view that Nvidia’s share of AI compute would actually fall over time as chip designers like Broadcom would gain about 30% of share and a gang of other merchants led by AMD would take at least 10%,” wrote Melius Research analyst Ben Reitzes in a research note.

However, robust AI spending should still be good news for the chip industry as a whole, Nvidia included. Meta Platforms CEO Mark Zuckerberg said Sunday that it was “quite possible” his company could invest more than a planned $600 billion in the U.S. through 2028 if AI progress keeps accelerating, in a post on the company’s social-media platform Threads.

“Since we think the AI Compute/Networking market that both Nvidia and Broadcom serve can grow to a $2 trillion annual figure by the end of the decade, both can win,” Reitzes wrote.

Reitzes kept a $240 target price on Nvidia and a $415 target on Broadcom, along with a Buy rating for both stocks.

Write to Adam Clark at adam.clark@barrons.com