NVIDIA Corporation (NASDAQ: NVDA) has truly been the best overall growth story since the Dot Com Bubble from 1998 to 2000. To deny this would count as financial insanity. NVIDIA is also becoming the stock that is now so good it is starting to become very long in the tooth. Some investors might take this view as a “Short Sell NVDA Now!” This is not that piece, but it is imperative for NVDA investors (and those who have missed the boat) to start making some very broad considerations using current and historical metrics.
Oggonomics has noted that NVDA is really more of a “Perma-Bull” situation. A company doesn’t get to a $3.2 trillion market capitalization without some megatrends helping it get there. And the explosion of datacenter chips and artificial intelligence chips are both megatrends.
Oggonomics wants to evaluate the capital flows, price performance of the stock, earnings and revenue multiples, the charts, relative value to Microsoft and Apple, “AI-washing,” and other metrics about NVDA shares.
One historical lesson is that high valuations alone might not be enough to wreck a growth story. For that matter, are NVDA’s high valuations even that high considering its growth and its history of exceeding expectations? If NVDA stock pulls back it might not even pull back that much. And it’s stock could just go into a rally consolidation phase where the bulls and bears fight it out each day for a new base.
Here goes…
CAPITAL INFLOWS
One thing that is becoming very difficult for investors in almost any other sector is that the daily capital inflow into NVDA shares has been taking away capital that could have gone elsewhere. Many great companies in the S&P 500 probably cannot get buyers in their shares because more investors want more NVDA. And the price and “overbought” conditions just do not seem to matter. And do most investors know anything about whether NVDA’s valuation multiples are high, low, or normal?
IS THE P/E RATIO CRAZY?
NVDA is valued at 100-times last year’s earnings per share. That is looking backwards at the Fiscal Year 2024 that has already ended. NVDA’s current consensus is $2.71 in earnings per share (EPS) for 2025 and $3.60 EPS for 2026. In this light, with shares at $132.00, NVDA shares are valued at 48.7 times current fiscal year expectations and valued at 36.5-times next fiscal year’s estimates. That’s a blended forward earnings ratio of about 43-times forward earnings — and for the growth this company has it’s not a crazy forward valuation multiple.
WHAT ABOUT REVENUE MULTIPLES?
Where things get a bit more dicey is on revenue multiples. And we have to keep in mind that the $3.23 trillion market cap is barely behind the top two in the world. Microsoft Corporation (NASDAQ: MSFT) is valued at $3.3 trillion in market cap, while a recent sharp rally in Apple Inc. (NASDAQ: AAPL) now generates a $3.31 trillion market value.
Apple had revenues of $383 billion in its last fiscal year (down from $394 billion the prior year). Microsoft generated nearly $212 billion in its last fiscal year (up from about $198 billion the prior year). NVDA generated almost $61 billion in Fiscal 2024 revenues. The consensus has now risen to $120 billion for current Fiscal Year 2025 revenue estimates and almost $160 billion in the following year. That means NVDA is expected to double sales this year and see another 33% growth the following year.
SELLING JUST BECAUSE?
Whether or not it’s now time to take all your profits in NVDA shares or even to short sell NVDA is totally up to you. The one lesson to keep in mind on selling solely because of gains or because of valuations is that the market can remain irrational for far longer than any single investor can remain solvent. And there is a rule of thumb that stepping in front of freight trains (shorting/selling solely on valuation and performance in this case) is a sure ticket to the graveyards. This is often “selling just because” and that’s often how you miss out on the greatest secular growth stories.
SAME NEWS DRIVERS EVERY DAY?
The Strategic Bull dilemma in a “Perma-Bull” NVDA scenario is that this stock just keeps rallying on the same news and the same fundamentals. Many other technology and IT companies are confirming that the move to buying AI chips and using R&D funds for AI and machine learning is definitely taking a bite out of other IT-spending budgets.
OVER ANALYST PRICE TARGETS!?!
After NVDA hits $132, the stock was nearly $10 higher than its $123.63 consensus analyst price target. And keep in mind that the consensus price target is also after analysts have continually raised their price targets and estimates on what feels like a weekly basis. Wall Street expects the datacenter and A.I. growth to keep ramping and ramping, and no single analyst wants to be the person who gets reminded that their NVDA call was made and the stock went on double yet again.
Here are just some analyst price target hikes in the last week:
- Evercore ISI to $145 from $131
- Goldman Sachs to $135 from $120
- TD Cowen to $140 from $120
- Susquehanna to $145 from $120
IS A.I.-WASHING REAL?
What happens to NVIDIA shares and other great AI-leaders when more news and worries about AI-washing start to surface in the market? AI-washing is where companies will overstate the value of AI or overstate the actual productivity boost that AI is adding to their overall business performance. And some companies have made great promises about AI but have so far almost nothing to show for it.
Oggonomics embraces much of the AI move, but acknowledges that the societal risks are massive. It also seems that AI may currently be at a few percentage points of its long-term potential for businesses in every sector of the economy.
YTD AND ANNUAL STOCK GAINS!
NVDA stock is now up 38% (as of June 14) since its late-May earnings and split announcement alone! That is less than a month. Its gain is 166% year-to-date (YTD) and its stock is up 207% over the last year. So, when on earth is enough really enough?
And when can “the whole rest of the market” start getting the capital inflow that has been sucked up by NVDA shares? It is almost like NVDA is the black hole and the rest of the market is rotating its event horizon.
THE S&P 500 “VALUE” TRAP?
And what about that “whole rest of the market” within the S&P 500? NVDA is now within about 2% of MSFT and AAPL in market cap for the highest valuations. Here are some stats for the rest of the lower half of the S&P 500 that is not getting the NVDA love:
not even 100 members (only 97) of the S&P 500 have $100 billion market caps;
the median market cap of the bottom 250 members of S&P 500 was still under $18 billion;
and the median value of the bottom 100 members of S&P 500 is still only about $12 billion.
MORE ON INFLOWS
Now let’s boil this down in raw dollars for the inflow of money. Every 0.5% gain in NVDA is worth nearly 1 of the bottom half of the S&P 500 companies. Imagine the broadening out in the S&P 500’s rally if asset managers decided to allocate even 10% of their NVDA exposure to the overlooked portion (the so-called “value”) of the S&P 500. It could be the same as creating 20 more new S&P 500 companies, and that is just for a 10% allocation rotation.
CHART CRAZY OR NOT?
What about the NVDA stock chart? NVDA’s chart from StockCharts.com shows that the RSI (relative strength) is nearly back at extreme readings. And its MACD readings (moving average convergence/divergence) have not been seen anywhere close to this high in the last 5-year period. But looking at readings from Chaikin, Money Flows Index, Bollinger Bands, and even Stochastics do not show that you should be close to a full panic mode. And when you just can’t make sense of the charts, that’s when old brokers just used to say “buy more because it’s still going up.”
PERSONAL DISCLOSURE
For open disclosure purposes, NVDA profits have been taken personally by this author but the entire position has not been eliminated from the personal and family investment portfolios.
IN CONCLUSION…
Again, this is not a “Sell NVDA Now!” article even if that is how bots and AI scoring will track this piece. The one thing that has become very evident is that NVDA has been sucking up capital that would have gone elsewhere — and when a market cap is over $3.2 trillion every 1% move is a theoretical $32 billion that could have gone elsewhere. Just don’t dare forget that selling “just because” and selling on valuation alone and jumping in front of freight trains can all contribute to keeping you from getting rich.
