(Bloomberg) — It’s not often Cathie Wood calls a darling of the innovation economy stock market overpriced.
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But Nvidia Corp.’s outsized leap. prompted an unusually skeptical response from ETF manager ARK Innovation (ticker ARKK). Wood said in a tweet on Monday that the world’s most valuable chipmaker had a “price ahead of the curve.” It comes after she closed her Nvidia position in the ARKK fund in early January before the stock doubled more to a market cap of $1 trillion.
The figure that gave Wood pause is the estimated 25x revenue for the current fiscal year in which Nvidia is trading amid investor enthusiasm for all things artificial intelligence. That compares to about six times for its peers at the Philadelphia Semiconductor Index and about 12 times for ChatGPT backer Microsoft Corp.
Cathie Wood’s ARKK dropped Nvidia shares ahead of $560 billion rise
Granted, Nvidia has been trading at a premium since the pandemic, but the gap seems more pronounced amid the recent hype. And beyond AI, some analysts say the outlook for chips is still bleak amid tepid demand for consumer electronics and more traditional servers.
“Recent Nvidia results have raised expectations for AI servers,” SMBC Nikko Securities Inc. analysts, including Takeru Hanaya, wrote in a note. Still, there is a “contrast between AI expectations and overall market weakness,” demonstrated by ongoing price cuts and inventory adjustments in the chip industry.
Nvidia was co-founded in 1993 by Jensen Huang, who still runs the company. It has proven more successful than its peers in developing chips that turn computer code into realistic images that computer gamers love, and has weathered a wave of consolidation that has seen rivals bought out, bankrupted or merged into larger companies.
Huang unveiled a series of new AI products at the Computex trade show in Taiwan on Monday. The extensive lineup included new robotic design, gaming capabilities, advertising services, and networking technology. Perhaps most central to his ambitions, Huang unveiled an AI supercomputer platform called the DGX GH200 that will help tech companies create successors to ChatGPT.
The question is how much stocks value this potential at the current level. Or overstate it.
“We fundamentally believe Nvidia’s stock is in bubble territory, regardless of potential future growth,” independent analyst William Keating wrote in a note to Smartkarma over the weekend. “In other words, we believe the train has left the station and we see no point in chasing it through the tunnel at this stage.”
Nvidia’s latest bullish forecast sent Wall Street earnings estimates soaring that its current-year price-to-earnings ratio fell from nearly 70x to around 55 even as the stock soared in arrow. This helped reduce his bounty at Tesla Inc., which Wood described in his tweet as the “most obvious beneficiary” of AI development.
Measured by the amount of money the company actually generates, Nvidia is by far the most expensive of its peers in the SOX. It trades at more than 140 times cash flow, more than double the values of its peers Advanced Micro Devices Inc. and Monolithic Power Systems Inc.
The jump was also pronounced relative to the value of the company’s assets. Nvidia trades at almost 40 times its book value, compared to less than 30 times for ASML Holding NV and KLA Corp.
–With help from Peter Elstrom.
(Updates with ratings and charts in last three paragraphs)
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