Barclays analysts started NVIDIA (NVDA) bonds at Underweight in a research note to clients on Tuesday.
The analysts told investors that they believe NVDA's valuations fully price in the AI GPU growth ramp, and they expect demand growth to eventually moderate as it moves from training into the inference phase.
"While we acknowledge that demand for Nvidia (NASDAQ:NVDA)'s advanced GPUs remains unabated, we are taking a view on the long-term sustainability of this demand as well as how the market is pricing this anticipated growth in NVDA bond spreads," explained the analysts.
"NVDA bonds are some of the tightest trading in the market, trading tighter than AAA/AA+ rated Microsoft/Apple, leaving little room for further tightening," they added. "As opposed to MSFT/AAPL, NVDA's AI technology and demand curve still needs to be proven beyond doubt."
Barclays sees NVDA likely facing meaningful competition from hyperscalers' own silicon, AMD, and potentially INTC. "We think [the] risk to NVDA bonds is to the downside," added the analysts.
The bank recommends "selling NVDA 3.5% 2050s (54bp, $82) and buying AMD 4.393% 2050s (71bp, $93) to pick 17bp of spread while paying $11 points and moving into a future AI GPU share-gainer."