Nvidia, a major beneficiary of artificial intelligence technology, recently reported impressive financial results. However, in the days following the earnings report, the stock price has surged by approximately 20%. Year-to-date, the shares have more than doubled, rising by around 120%. As a result, Nvidia is now valued at $2.8 billion, positioning the graphics processing unit maker just below tech giants Apple and Microsoft in the S&P 500 index. Some analysts have pointed out that Nvidia’s market capitalization now exceeds the combined value of Amazon, Walmart, and Netflix.
Market Watchers Express Concerns
Despite Nvidia’s remarkable performance, some market watchers are beginning to question whether the company is overvalued. The stock has surpassed its 50-day and 200-day moving averages, and it currently carries a price-to-earnings (P/E) ratio of 66. Josh Brown, CEO of Ritholtz Wealth Management, raised the question of whether Nvidia should be as highly valued as Apple or Microsoft. He highlighted that any potential disruption to earnings growth expectations could trigger a significant correction in Nvidia’s stock price and other growth stocks associated with the AI sector.
Analysts like Jonathan Krinsky from BTIG have suggested that a pullback in Nvidia’s stock price to the previous breakout level between $975 to $1,000 would not be surprising. This could result in a 12% to 14% decline from the recent closing price. Krinsky also noted that Nvidia’s current price action, which has surpassed its upper Bollinger Band, could indicate emotional buying and potentially lead to a “blowoff top.” The Bollinger Band is a technical indicator used to assess the volatility of an asset and determine if it is overbought.
Rob Ginsberg of Wolfe Research highlighted Nvidia’s notable performance and its close proximity to a significant breakout level of $1,150. He described Nvidia’s dominance within the stock indices as historic, indicating the company’s strong position in the market. However, concerns remain regarding the sustainability of Nvidia’s current growth trajectory and whether the stock price accurately reflects the company’s fundamentals.
While Nvidia has experienced impressive growth and market dominance in the AI sector, some market observers are raising red flags about the stock’s valuation. The potential for a correction or pullback in Nvidia’s stock price may present challenges for investors, especially as the broader market faces pressure from rising Treasury yields. As the debate over Nvidia’s valuation continues, investors will need to carefully evaluate the risks and potential rewards of holding onto or selling their positions in the company.