Wall Street Cools on Nvidia After 25% Drop, But 77 of 82 Analysts Still Say Buy

Why Two Major Banks Pulled Nvidia From Their Top Picks

Nvidia's stock has fallen more than 25% from its record high, prompting two of Wall Street's largest banks to remove it from their lists of top investment ideas. Morgan Stanley pulled Nvidia from its top-pick list because the bank automatically removes any pick that drops more than 25% from where it was named—a rule triggered after Nvidia slid further following its Oct. 2 addition. Bank of America cut Nvidia, along with Micron and Lam Research, from its US 1 List of best ideas. Despite these removals, both banks still rate Nvidia a Buy.

Other analysts were less diplomatic. Baird downgraded Nvidia to Neutral and slashed its price target to $200 from $500, citing rising odds of a CEO change. Aletheia Capital downgraded to Hold, and Mizuho, Citi, and Wells Fargo trimmed their price targets after reports linked CEO Jensen Huang to a suspected Chinese spy. The reports have raised questions about leadership stability at the $4 trillion company.

Yet the vast majority of analysts remain bullish. Of 82 analysts covering Nvidia, 77 rate it a Buy, according to Bloomberg data. The average price target sits about 87% above where the stock closed Tuesday—the widest gap between the two measures in two years of monthly readings, because the stock fell while targets mostly stayed put. Nvidia now trades at roughly 11 times next fiscal year's expected earnings, compared to about 18 times for the S&P 500.

The bigger question is who runs the company. As of Wednesday morning, Polymarket traders saw a better than 1 in 4 chance that Nvidia would announce Huang's exit by the end of March. Venture capitalist Vinod Khosla endorsed the board's first move—an independent investigation—as exactly the right thing to do. Dan Niles of Niles Investment Management, who has known Huang for 30 years, isn't worried about the personal side, comparing Huang's situation to Winston Churchill's leadership during World War II.

The Gap Between Nvidia's Falling Stock and Stubborn Price Targets

Why the Analyst Consensus Is Holding Firm

The gap between Nvidia's falling stock price and its stubbornly high analyst price targets is the widest in two years. This divergence reflects a fundamental tension: analysts are reluctant to abandon a stock that has been a massive winner, especially when the broader AI investment thesis remains intact. Bank of America's own strategist, Savita Subramanian, emphasized the importance of US tech primacy, calling it almost a 'put' on the tech story—suggesting that even as the bank trims its list, it sees structural support for the sector.

History Offers a Mixed Signal

Nvidia has closed 25% below a record 13 times since its 1999 IPO. A year later, it was higher in nine of those instances. However, the exceptions were brutal: after drops in 2001, 2002, and 2007, the stock lost more than half its value again over the next 12 months. This history is a small sample, and half of it comes from the dot-com boom and bust, when Nvidia was a fraction of today's $4 trillion giant. The lesson is that mean reversion is not guaranteed, especially when the company's leadership is in question.

The CEO Question Looms Large

Reports tying Jensen Huang to a suspected Chinese spy have introduced a new layer of uncertainty. Baird's downgrade explicitly cited rising odds of a CEO change. Polymarket traders assign a better than 1 in 4 chance that Nvidia announces Huang's exit by the end of March. Venture capitalist Vinod Khosla supports an independent investigation, while Dan Niles, who has known Huang for 30 years, remains unconcerned about the personal allegations. The outcome of this situation could significantly impact investor confidence and the company's strategic direction.

Valuation and the AI Trade

Nvidia's forward earnings multiple of 11x is now below the S&P 500's 18x, a notable shift for a stock that was once priced for perfection. This suggests that the market has already priced in significant risks. For context, the AI trade has been a major driver of US equity markets, and any weakness in Nvidia could have ripple effects across the semiconductor and technology sectors. However, the low valuation relative to the broader market may attract value-oriented investors if the leadership situation stabilizes.

What Nvidia's Divergence Means for Investors and the AI Trade

The most important insight: Nvidia's stock has fallen enough to trigger automatic sell rules at major banks, yet the analyst community remains overwhelmingly bullish—creating a rare divergence that could signal either a buying opportunity or a value trap.

For investors and executives exposed to the AI trade, the key is to separate the stock's technical decline from the company's fundamental outlook. The 25% drop triggered Morgan Stanley's stop-loss policy, but that is a mechanical rule, not a change in thesis. Bank of America's strategist still sees US tech primacy as a core support. The real risk is the CEO situation: Baird's downgrade and Polymarket's odds suggest a non-trivial chance of a leadership change by March. Watch for the board's independent investigation findings and any announcement from Nvidia's board. Also monitor whether other banks follow Morgan Stanley and BofA in removing Nvidia from their lists, and whether the average price target begins to decline. The 87% gap between targets and the stock price is unsustainable—either the stock recovers or targets get cut. For long-term investors, Nvidia's 11x forward earnings may look attractive, but only if the leadership question is resolved. For traders, the volatility around any CEO news is likely to remain high.