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The narrative behind Nvidia’s stock market rally makes sense, but its current price doesn’t, according to Aswath Damodaran.
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The “dean of valuation” thinks Nvidia would have to dominate the entire AI market to justify its current price.
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Too little upside remains for the chipmaker’s stock, the NYU finance professor told CNBC.
Nvidia’s spectacular 185% rally was the highlight of the US stock market this year. The chipmaker outperformed all other stocks in the S&P 500 as investors raised bets that it will benefit significantly from the artificial intelligence boom.
That story makes sense, but the current stock price of around $415 doesn’t, according to NYU finance professor Aswath Damodaran, who has earned the nickname “Dean of Valuation.” for its focus on estimating the value of assets.
Nvidia would have to “decimate or dominate the entire AI market to justify this price,” Damodaran told CNBC on Tuesday. It’s a bet he’s just not ready to take and there’s too little potential left for action, he says.
Damodaran cashed in on his stake in Nvidia after the chipmaker’s torrid rally – when it first hit a $1 trillion valuation in late May and joined a handful of companies including Apple, Microsoft, parent Google Alphabet and Amazon who have reached the mark.
He told news outlets at the time that as someone who specializes in spotting stocks that are trading below their intrinsic value, he couldn’t justify holding Nvidia stock.
“AI is that buzzword that drives all businesses forward. The two companies that really have something hardware to show off are Microsoft and Nvidia and both have benefited from it – Nvidia in particular,” Damodaran told CNBC. .
“The story makes sense, not the price,” he added.
Still, Damodaran believes AI will bring about changes that have the potential to radically change the way people live and work – “and those changes always have valuation implications.”
“AI is changing the conversation and I think it has the potential unlike the Cloud or the Metaverse, where I felt I couldn’t quite see the magnitude of business coming out of both worlds,” he said. he told CNBC.
Read the original article on Business Insider