The Stock of Nvidia is Falling, but These Two Factors Could Spur a Rebound

Nvidia Corp.'s stock is anticipated to decline further on Wednesday following a report revealing that the U.S. Department of Justice has issued a subpoena to the semiconductor giant as part of an ongoing antitrust investigation.

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However, this "expected" subpoena may not significantly impact Nvidia's stock performance in the coming months, according to Melius Research analyst Ben Reitzes.

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In a statement, Nvidia expressed confidence, stating that it believes it "wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them." The Department of Justice, on the other hand, declined to comment on the matter.

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Reitzes, meanwhile, is concentrating on two other crucial factors that could influence Nvidia's stock over the next six months. These factors include the company's margin performance and its ability to sustain growth through 2026.

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Nvidia's stock experienced a sharp 9.5% drop on Tuesday, followed by an additional 3.4% decline in morning trading on Wednesday. The stock has plummeted by 16.5% since the company released its earnings report last week.

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According to Reitzes, investors were so preoccupied with concerns about the potential revenue impact of reported delays in Nvidia's new Blackwell chip line that they "seemingly forgot to think about the margin impact of fixing it."

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Reitzes highlighted that the key issue for the stock now revolves around when and how Nvidia's gross margins will hit their lowest point and then recover. He projects that gross margins will bottom out at approximately 72.6% in the first quarter of fiscal 2026, as inventory reserves stabilize and the production of Blackwell chips gains momentum.

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However, investors will need confidence in the margin trajectory before that recovery becomes evident. Reitzes believes that once investors are convinced that Blackwell is driving overall margins upward again, the stock is likely to follow suit in the first half of 2025.

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Another challenge currently weighing on Nvidia's shares is the ongoing debate over the return on investment for artificial intelligence (AI). Reitzes pointed out that, similar to the previous year, investors are now questioning whether 2025 will be the peak year for AI investments, as they struggle to see sufficient AI adoption to justify continued investments.

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Despite these concerns, Reitzes remains optimistic that investors will soon receive more concrete evidence to support further investments in AI. He is particularly enthusiastic about various video-generation applications, which he believes could serve as "key investment catalysts through 2026," providing more tangible examples that could justify additional investments in consumer internet applications. Additionally, the upcoming next generation of OpenAI's GPT could generate excitement among enterprises, further driving AI adoption.

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Furthermore, Reitzes emphasized that Nvidia itself has the potential to convince investors of its growth prospects for 2026. While Wall Street is currently focused on Blackwell shipments, Nvidia's next chip beyond Blackwell will also be of significant interest.

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Reitzes expressed confidence that major cloud service providers, or hyperscalers, recognize the necessity of investing in Blackwell. However, he anticipates that some of the uncertainty surrounding this debate will be alleviated when more information about Nvidia's next chip, codenamed Rubin, is revealed at the company's GTC conference in March.

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In summary, while Nvidia's stock may face near-term pressure due to the ongoing antitrust investigation, Reitzes believes that the company's long-term prospects remain strong, provided it can navigate challenges related to margins and AI investments. Investors are advised to monitor Nvidia's progress in these areas, as the company's ability to address these concerns will likely determine the stock's trajectory in the coming months and beyond.

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