- According to Rebellion Research, Nvidia’s stock price has become a bubble.
- Stocks could soon crash like tulips did in the 17th century or the dot-com companies of the 1990s, the think tank said.
- Thanks to the rise of generative AI, the semiconductor giant has grown 180% this year.
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According to Rebellion Research, Nvidia’s stock has risen so much this year that the semiconductor giant now trades at a bubble valuation reminiscent of 17th-century tulips and dot-com companies of the late 1990s.
Shares are up 180% to $410, but the think tank said earlier this month that the stock is now hugely overvalued and could crash at any time.
“There have been numerous asset bubbles in financial markets in the past, from the Tulip Mania of the 17th century to the more recent dot-com bubble of the late 1990s and early 2000s,” Rebellion analysts wrote.
“Nvidia’s recent stock performance, driven by enthusiasm for generative AI and rising profits, appears to exhibit many of the hallmarks of such speculative bubbles,” they added. “We think Nvidia is a great company… but only maybe at $300 per share.”
Generative AI programs like ChatGPT run on powerful, specialized graphics processing units (GPUs) – and Nvidia has a lion’s share of this market.
The company released back-to-back stellar quarterly earnings reports showing that demand for its products has increased thanks to the AI craze, and investors have responded by adding to their shares.
That has helped Nvidia reach a trillion-dollar valuation and established it as a member of the mega-cap “Magnificent Seven” group of Big Tech firms.
However, it remains to be seen how “practical and profitable” AI can be, and that makes Nvidia stock vulnerable at its current price, according to Rebellion.
The company also appears overvalued based on its current price-to-earnings ratio and could struggle if the Federal Reserve keeps interest rates higher for longer to combat inflation, strategists warned.
“With historical price-earnings ratios as a reference and the impending change in monetary policy, investors should be cautious,” they said. “As with any bubble that has come before, the factors that led to its rise often lay the foundation for its eventual bursting.”
Rebellion, which uses probability models to make market forecasts, compared the chipmaker’s valuation to several high-profile bubbles from the last 400 years.
These included the Dutch tulip boom of the 1630s – when contract prices for tulip bulbs skyrocketed, creating the so-called first speculative financial bubble – as well as the more recent dot-com crash, which triggered a massive sell-off in the tech industry. heavy Nasdaq Composite between March 2000 and October 2002.
Source : markets.businessinsider.com