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JPMorgan Analysts Caution Against Exiting AI Stocks Prematurely Amid Recent Declines

In recent weeks, once-celebrated AI stocks have faced significant challenges, with notable losses in market value. For instance, NVIDIA’s shares have dropped approximately 14.7% from their all-time high of $973.85 on March 9 to a recent close of $830.41 as of May 1, 2024. This downturn has led investors to increasingly worry that the robust rally in AI stocks might have been overly optimistic, prompting them to secure profits.

JPMorgan analysts, including Samik Chatterjee, have highlighted in a recent “Investing.com” report that the rapid ascent of stocks like NVIDIA and Super Micro Computer has sparked fears of a potential bubble in the AI sector. However, they believe it is still too early to shift investments from AI to other sectors.

Growing Doubts Over AI Investments
Investors are questioning how long the expansion of AI infrastructure can continue before a necessary pause, according to Chatterjee’s team. The forthcoming transition to NVIDIA’s new Blackwell chips has become a focal point of concern about a possible short-term bubble, despite overall strong belief in the long-term drivers for AI spending.

NVIDIA introduced its Blackwell computing platform in March, which CEO Jensen Huang described as powering a new industrial revolution through AI. This system is reportedly four times more efficient at training AI than the existing Grace Hopper generation. However, some experts, including Tenstorrent CEO Jim Keller, have criticized the project for its high costs, suggesting that similar advancements could have been achieved with significantly less investment. This critique seems to resonate with investors, contributing to a decline in NVIDIA’s stock following the product launch.

Expert Advice: Hold Onto AI Stocks Like NVIDIA
The JPMorgan team advises against an early sector rotation from AI stocks to other assets. They argue that revised earnings forecasts justify higher valuations for AI stocks and that expectations for recovery in other sectors like telecommunications are still too uncertain.

Other experts also recommend maintaining investments in AI stocks despite recent declines. Ben Reitzes of Melius Research believes concerns about NVIDIA’s growth potential may be short-lived, predicting that Blackwell systems could drive double-digit growth through the end of 2025. Consequently, he has issued a buy rating for NVIDIA with a target price of $1,000.

Reitzes is not alone in his positive outlook; among 41 analysts tracked by TipRanks, 39 recommend buying NVIDIA shares, and only two suggest a hold. The average target price is $1,005.59, aligning closely with Melius Research’s estimate.

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