Is Nvidia stock set for a massive crash?

Nvidia stock is up 3,500% in five years. So has AI fever sent it ridiculously high now, or are we really just seeing the start of it all?

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Image source: NVIDIA

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What’s happened to Nvidia (NASDAQ: NVDA) stock’s price has been staggering.

We’re looking at a 160% gain just since the start of 2024. The stock was split 10 for one on 10 June. Since then alone, it’s up another 7%.

Last month, HSBC Holdings set a price target of $1,350 (pre-split) on Nvidia. It’s already been above that.

Over the past five years? A stunning 3,300% rise.

Soaring value

Nvidia is vying with Microsoft and Apple to be most valuable company in the world, briefly taking the top spot. Its market cap stood at $3.3trn at close on 20 June. And it can rise or fall $100bn in a day.

That means the value of Nvidia can change by about the entire value of BP, in just 24 hours. Or around twice the value of Rolls-Royce Holdings, our very own FTSE 100 growth star.

It’s all about artificial intelligence (AI), of course, and this seems to be the one stock to buy right now.

That’s because it makes AI chips, and the demand for those has been soaring. Markets clearly expect that to keep on going.

Reality or hype?

But where do reality and hype meet? I’m sure there’s a fair bit of hype behind this storming price run. Some people just pile in to anything that’s going up, and I reckon that’s unavoidable.

But how close are we to actual, realistic, long-term reality?

I cast my mind back to the dotcom bubble of 1999, when people piled into anything to do with the internet and prices skyrocketed.

Amazon.com was one of them. It soared in December 1999. But then it suffered a huge fall over the next couple of years, as I thought it would. How clever I was.

But today, Amazon is worth 33 times what it was at its 1999 peak. Hmm, perhaps not so clever.

Same again?

If AI really is the new dotcom, maybe Nvidia will reach a peak and then fall heavily. But maybe it will then start climbing again. And in another 20 years, maybe it will be worth $30trn.

My problem is that I just don’t know how to value something like this. And by that, I mean I have no clue at all.

It’s no good looking at things like the price-to-earnings (P/E) ratio today, or for the next few years of forecasts.

As recently as 2013, Amazon’s P/E reached over 1,000. And that’s beyond anything my brain can get a handle on. Oh, and the share price was a lot lower then.

What next?

So what might happen next? I do see a good chance of a Nvidia share price crash. But then, I also see a good chance it will be way ahead of where it is today, in another couple of decades.

Back when the internet was getting started, nobody saw the way it would come to dominate our lives.

And I don’t think anyone has a real view of what AI will do for us (or to us) in the coming decades.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, HSBC Holdings, Microsoft, Nvidia, and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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