Why this analyst says Nvidia is not a stock to buy

The moment markets have been eagerly awaiting has finally arrived. Nvidia (NVDA) has released its first quarter earnings report, surpassing expectations on both revenue and profitability. D.A. Davidson Managing Director Gil Luria joins Asking for a Trend to discuss why he believes Nvidia is not a stock to buy despite its current performance.

Luria acknowledges that Nvidia's results were "great," though "it shouldn't be too surprising" given their customers forewarned about increased spending on Nvidia's products. He pointed out that tech companies are engaged in an "arms race" to acquire as much generative AI capacity as possible, creating significant demand for the semiconductor company.

However, Luria cautions that with more companies looking to rival Nvidia, "that's what you have to start thinking about for next year and the year after that." He emphasizes that these emerging competitive threats are something investors should closely monitor. For this reason, Luria says Nvidia is not currently a stock to buy: the company's "own customers" will be competing with them, leading to a revenue decline.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Angel Smith

Video transcript

Video also announcing a 10 for one stock for stock split and raising its dividend.

Joining me now is Gil Luria managing director at D A Davidson.

So Gil great, great to see you.

So listen in video reports, they be they offer another bullish uh sales forecast.

J Jetson won here.

Gill saying the next industrial revolution has begun.

In his words, give me your take on the print.

Gil your reaction.

No, it's a great result.

Expectations were high because they keep setting them higher and they still exceeded them both for this quarter and their guns for the next quarter.

But it shouldn't be too surprising.

Their customers told us they were going to spend more Microsoft Amazon Google Meta told us they were going to spend more on GP US.

They told us they're buying any GP U NVIDIA will sell them and that should continue for the rest of the year.

Those companies were very clear about the fact that they're in an arms race.

They're in a land grab to have as much generative A I capacity right now as they can buy.

And that bodes well, not just for this quarter next, but for the rest of the year for NVIDIA because they have all that demand lined up and, and Gil just looking ahead now, if you're an NVIDIA investor, you're excited new GP U platform, Blackwell on the way, what Gil, what is that gonna mean for the company, for its business financials?

Well, so the innovation of NVIDIA is accelerated, they're now introducing a new product set every year and they have to because uh competition is now building products that are more and more comparable to what NVIDIA does.

And importantly, those customers that I listed are all building their own chips.

They're all saying that infer will increasingly be done on their chips, whether in a data center or on a device.

And that's what you have to start thinking about for next year and the year after that is that their customers at some point are gonna have enough NVIDIA GP USA because they'll have enough data center capacity and B because they're gonna be putting their own chips in the data center.

So those are the things to look out for as you get past this year.

But a lot of this stuff is not gonna happen this year.

Those companies told us so and gil um you know, most of your colleagues on the street g 90% tell me I should buy NVIDIA.

You don't, you say, you know, you're neutral, you just mentioned some of the potential challenges ahead.

Um Are those why you're on the sidelines gay or, or is it an Eva evaluation call here?

No, that's exactly why because um I have the street low number out of 50 something numbers for 2026.

I actually think that the, the the revenue growth for 2026 will be negative where most of the estimates are for pretty substantial growth into next year and the year after that to us, what I just said in terms of their own customers, competing with them, their own customers reaching a point of saturation at some point means that there's gonna be a point next year where revenue starts declining.

Sequentially.

When that happens, the estimates are gonna have to go down very substantially hard to recommend a stock when you expect that to happen as soon as next year.

So when you talk to clients though gil they ask you, OK, what, what are some upside risks to that call?

What do you tell them that if applications start catching on at a faster rate, if we get more and more killer applications that depend on data center GP U capacity, then NVIDIA will be able to keep ramping for the next few years because those large customers will need more and more capacity.

We haven't seen that yet.

We have some great interesting promising applications out there but none that have caught on none that are commercially viable beyond testing experimentation and and hope until we see some of those applications generating real substantial demand for Microsoft Amazon Google's customers.

There's not a lot of reason to think that they'll have to continue to ramp up their data center spend into next year and the year after that.

And, and so Gill and I am interested, I if valuation isn't attractive here, if it's not supportive in your opinion, what, what is fair value, Gill in your opinion?

Well, it, it, it's a tough situation, right?

Because what I'm describing is next quarter is gonna be great.

The quarter after that's gonna be great and they're only trading at relatively comparable multiples to historical levels.

So, valuation, if you believe NVIDIA will continue to grow into next year and the year after that valuation is not unreasonable.

If you believe as we do, the 2026 results will have sequential decline and the business will converge toward more of a run rate, then valuation actually could end up being very, very high right now.

Gail I like you're sticking to your guns.

Appreciate you coming on the show.

Thanks so much.

Thank you.