Nvidia Corp.’s breakneck rally since the start of last year has finally run out of room to push higher, according to New Street Research analyst Pierre Ferragu.

Ferragu downgraded the AI-focused chipmaker to neutral from buy, writing that the stock is “getting fully valued” after soaring 154 per cent this year, on top of a gain of almost 240 per cent in 2023. Shares fell 1.9 per cent on Friday, compared with a gain of 1 per cent for the Nasdaq 100 Index.

Additional upside “will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet,” Ferragu wrote.

While the “quality of the franchise is nevertheless intact,” there is, “if anything, a risk of derating” should the current outlook remain unchanged, he added.

Nvidia is the second-best performer among S&P 500 components this year, behind Super Micro Computer Inc, another favorite among AI investors. The climb has added almost US$1.9 trillion to Nvidia’s market capitalization, and briefly resulted in it attaining the title of the world’s largest company.

Analyst downgrades are rare for a company that has become the biggest beneficiary of the artificial intelligence spending boom. Nearly 90 per cent of the analysts tracked by Bloomberg recommend buying the stock. However, valuation is often cited as a concern. Nvidia trades at more than 22 times estimated revenue for the next 12 months, making it the most expensive stock in the S&P 500 Index by this measure.

New Street set a one-year price target of $135 for Nvidia, compared with its Friday close of $125.82.

Beyond Nvidia, New Street is positive on both Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co Ltd., citing their growth trends and valuations.

AMD and TSMC are “the best names to own in the group, offering strong upside in both in our base and high scenarios,” New Street said in a note, adding that among other stocks with AI exposure, Broadcom Inc., Arista Networks Inc. and Micron Technology Inc. all “remain attractively valued.”