Trade tensions have sowed havoc throughout the market, with impacts felt far and wide. This has certainly been the case when it comes to the semiconductor industry, and Nvidia Corporation (NASDAQ:NVDA) has been among those buffeted by the darkening clouds of international commerce.
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The company shares are down some 9% since the start of the year, reflecting investor worries over tariffs, China export restrictions, and a DeepSeek-inspired slowdown in capex investments by hyperscalers, among other concerns.
Believing that the tariffs and cuts in federal spending are going to drive the economy into an economic contraction, investor Paul Franke cautions that this “bubble stock” is one to avoid.
“If we are sliding into recession, and we experience a deep or prolonged one, Nvidia’s future price direction could be straight down, just like late 2007’s setup,” explains the 5-star investor.
In other words, Franke thinks that Nvidia is about to go down a path it previously tread when the Great Recession hit almost two decades ago. The investor notes that recessions are particularly rough on cyclical stocks like semiconductors.
Franke further details that analysts are not factoring in a possible recession when forecasting the company’s sales and EPS growth. Though a 1-year forward Price-to-Earnings multiple south of 20x might appear attractive, this is likely a “best-case scenario” if a recession sparks cancelled orders and decreased capex spending.
“If expected growth actually reverses into sliding sales and profitability from a recession into 2026, Nvidia’s valuation is still way, way too high,” adds Franke.
The investor also points to increasing competition for Nvidia’s products, as other semiconductor firms and hyperscalers are looking to develop their own chips. It follows that this would naturally decrease demand for NVDA GPUs.
Another worry for the investor? The potential for quantum chips to make GPUs obsolete, in which case Nvidia’s sales and income would take a massive hit.
“A monster collapse in both could be the long-term future of the business. Don’t say such is impossible. Technology changes happen rapidly,” cautions Franke.
The investor is therefore rating NVDA a Strong Sell. (To watch Franke’s track record, click here)
Wall Street, on the other hand, holds a completely opposite viewpoint. With 39 Buy and 3 Hold ratings, NVDA enjoys a Strong Buy consensus rating. Its 12-month average price target of $177.23 would yield gains of almost 50% in the coming year. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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