Nvidia Stock (NVDA) May Be ‘Overheating,’ Says BTIG Analyst

Nvidia (NVDA) has surged 84% in under four months, briefly reclaiming its position as the world's most valuable company, driven partly by a U.S. policy reversal allowing AI chip sales to China, which could recover $15 billion in FY26 data center revenue. Despite this momentum, the stock exhibits overbought signals with a 14-day RSI above 80, leading some investors to trim positions due to valuation concerns (trading at 34x forward earnings) and potential AI business cyclicality. The upcoming earnings reports from key clients like Alphabet, Microsoft, and Meta, which collectively represent over 40% of Nvidia's revenue, will be crucial, even as Wall Street analysts maintain a 'Strong Buy' consensus.

Analysis

Nvidia's stock has demonstrated remarkable momentum, surging 84% in under four months to briefly become the world's most valuable company. This rally is underpinned by a significant fundamental tailwind: a U.S. policy reversal allowing the resumption of certain AI chip sales to China, which could help recover a substantial portion of the $15 billion in data center revenue previously at risk for Fiscal Year 2026. However, technical indicators suggest caution is warranted, with the 14-day relative strength index (RSI) exceeding 80, a level indicating the stock may be overbought and sentiment is overheating. Reflecting this concern, some investors are trimming positions due to the stock's rising valuation, which now stands at approximately 34 times forward earnings. While this is below the five-year average of 40, it is a sharp increase from sub-20 levels in April, raising questions about how much growth is already priced in. The market's focus now shifts to the upcoming earnings from key customers—Alphabet, Microsoft, and Meta—which collectively account for over 40% of Nvidia's revenue and will serve as a critical gauge of future demand. Despite these mixed signals, Wall Street maintains a 'Strong Buy' consensus, though the average price target of $182.06 implies a more modest 5.5% upside potential.

Key Decisions for Investors

• Given the stock's 84% rally and an overbought RSI signal above 80, investors with substantial gains should consider trimming positions to manage risk, as sentiment appears overheated and some institutional investors are already taking profits.
• Closely monitor the upcoming earnings reports from Alphabet, Microsoft, and Meta, as their capital expenditure guidance will be a crucial leading indicator for near-term demand, given that these clients represent over 40% of Nvidia's revenue.
• Investors should weigh the long-term positive catalyst of renewed China sales against the near-term risks of a valuation-driven pullback and the limited 5.5% upside implied by the current consensus price target.