Nvidia Downgraded: Weak GPU Pricing Outlook

Theodore QuinnThursday, Apr 3, 2025 2:00 pm ET
4min read

Nvidia (NASDAQ:NVDA) shares slid more than 7% on Thursday morning after HSBC downgraded the stock, citing signs that the chipmaker's pricing power for its high-end graphics processors is beginning to weaken. The downgrade from "buy" to "hold" by HSBC analyst Frank Lee reflects broader market sentiments regarding the sustainability of AI spending and GPU pricing power.



Lee's thesis didn't have much to do with President Donald Trump’s recent tariff announcements. Instead, he is worried that various factors that propelled spectacular growth in Nvidia’s stock over the past few years could diminish. For instance, Nvidia has benefited from strong pricing power thanks to its dominance of the market for artificial-intelligence graphics processing units. But the company hasn't seemed to boost average selling prices much recently, suggesting that pricing power could be less of a driver going forward, and that "is likely to cap earnings upside momentum," according to Lee.

The downgrade also reflects market sentiments regarding the potential impact of tariffs on Nvidia's stock. While Lee did not focus on tariffs as the primary reason for the downgrade, he did mention that "investor concerns about the sustainability of H20 shipments amid the geopolitical environment and potential tariffs by the Trump administration" could affect Nvidia's momentum in the H20 chips for the China market. This suggests that tariffs are also a factor in broader market sentiments regarding Nvidia's stock and the sustainability of AI spending.



Nvidia's stock is off 5.7% in morning trading Thursday as investors digest the latest tariff announcements and Lee's downgrade. The stock is down 30% from its peak close achieved in early January, but Lee thinks it will have trouble gaining momentum again in light of his expectation for more limited earnings upside or multiple expansion. In Lee's view, "re-rating headwinds remain," meaning that investors may not come to assign the stock a higher multiple. That's notable because "Nvidia's share price performance since 2023 has been driven more by earnings estimate revisions momentum rather than overall re-rating," he continued.

Investors have gotten more concerned about Nvidia's stock lately, owing in part to uncertainties over China's DeepSeek and whether it suggests companies will move to train artificial-intelligence models with less expensive hardware more broadly. "The complete impact on long-term demand from DeepSeek is still uncertain," Lee noted. Plus there are growing fears that big cloud companies will have to trim their capital-expenditure plans eventually.

"Although the sustainability of [U.S. cloud-service-provider] capex momentum has been an ongoing concern for the overall market since the initial AI boom started in 2023, we believe there are more concerns emerging over long-term demand sustainability going into 2026 than we have seen over the past two years," Lee wrote.

With the downgrade, he's now one of only six analysts tracked by FactSet who have hold-equivalent ratings on Nvidia's stock. The other 61 have buy-equivalent ratings. The average price target among all analysts is $173.16, about 67.3% above current levels. Lee lowered his target to $120 from $175.

The downgrade also reflects market sentiments regarding the potential impact of tariffs on Nvidia's stock. While Lee did not focus on tariffs as the primary reason for the downgrade, he did mention that "investor concerns about the sustainability of H20 shipments amid the geopolitical environment and potential tariffs by the Trump administration" could affect Nvidia's momentum in the H20 chips for the China market. This suggests that tariffs are also a factor in broader market sentiments regarding Nvidia's stock and the sustainability of AI spending.

Overall, HSBC's downgrade of Nvidia's stock reflects broader market sentiments regarding the sustainability of AI spending and GPU pricing power, with concerns about pricing power, demand from cloud service providers, and the impact of tariffs all playing a role in the decision.

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