Nvidia's eye-popping 133% rally in 2021 prompts downgrade from Wedbush on chip maker's valuation despite strong fundamentals

• Nvidia's 133% year-to-date surge has been supported by an improving fundamental outlook as its chip business fires on all cylinders.
• But now Nvidia's valuation is too rich, according to a downgrade note from Wedbush on Friday.
• "Even with end market conditions all shifting in NVDA's favor, we just can't find a means of justifying a higher target price," Wedbush said.

Nvidia stock has only gone up this year, rising 133% year-to-date and getting closer to a $1 trillion valuation as its business units continue to fire on all cylinders and consistently beat analyst earnings estimates.

The chip maker has seen unprecedented demand in its data center unit, has solid long-term opportunities in the emerging Metaverse due to its graphic intensive requirements, and is poised to benefit from the continued electrification of cars.

But despite the strong and still improving fundamentals, Wedbush analyst Matt Bryson is unable to justify raising his price target on the company any further.

"While typically we would want to tie a rating change to some sort of negative catalyst; frankly there is none," Bryson said in a Friday note. Bryson downgraded Nvidia to Neutral and raised his price target on the company to $300 from $220, representing potential downside of 1% from Thursday's close.

Bryson still expects Nvidia to continue exceeding expectations when it reports earnings next week, "and we expect the company will provide constructive guidance ahead of prior Street views," the note said. That constructive guidance could even result in Nvidia providing a more ambitious view of its long-term total addressable market.

But with Nvidia trading at 55x Wedbush's 2024 estimates, "we would need to lift the multiple we use to determine our price target to 67x in order to justify continuing with our Outperform rating," Bryson said. That type of sky-high valuation would suggest that Nvidia should be valuated 7x larger than its stated 2024 total addressable market, according to the note.

"Even with end market conditions all shifting in Nvidia's favor, we just can't find a means of justifying a higher target price for Nvidia beyond the levels that it currently trades," Bryson said.

Shares of Nvidia fell nearly 1% in Friday morning trades following Bryson's note.