Nvidia (NASDAQ: NVDA) doesn’t seem to have a reverse gear. Time after time, the Nvidia share price is called expensive. And on every single occasion (so far), it has surged to new heights. Things might be changing, however.
The AI revolution has been the major catalyst driving Nvidia upwards. But it could also be its Achilles heel. The Bank of England and head of JP Morgan Jamie Dimon have both said that a correction could be on the horizon, perhaps in the next six months to two years.
What does that mean for Nvidia shares? Will they keep rocketing up to $300 and beyond? Or is a correction back down to $100 on the cards? And which of those two figures is likelier to happen first? Here’s what I think.
Bear case
From its current share price of $183, a fall to $100 would mean a 44% drop in value. In terms of market cap, the biggest company in the world would lose nearly $2trn. Cripes.
Such a drop might seem within the realm of possibility. After all, artificial intelligence hasn’t done all that much yet. One MIT study doing the rounds found 95% of companies implementing AI achieved no return on investment. An incoming crash would hit Nvidia shares more than most, wouldn’t it?
I’m not so sure. While I can see Nvidia shares falling in the event of a wider market crash, its role at the beating heart of AI makes it indispensible, not only to many of the big tech titans, but to governments too.
There is a huge amount riding on AI. For this reason, I suspect Nvidia will keep sales high even in the event of a crash fuelled by AI.
Bull case
How about the $300 share price? A rise to that figure requires a 64% increase on its current value. The $4.45trn company would become a $7.3trn company.
One way to get there is thorugh increased earnings. If artificial intelligence takes off, then profits could rise. However, the recent influx of orders has been part of an AI arms race. There is a worry that sales will fall off after many of the big tech giants have the chips they need.
Another way is through increased valuation. Again, if artificial intelligence starts working wonders then Nvidia shares will likely be carried along. Given a forward P/E ratio of 29, not much higher than the S&P 500, this isn’t too far fetched.
For my money, I think a correction or crash is more likely than not. Valuations can only stay stretched for so long, as history likes to remind us. Even despite that, I think Nvidia is one of, if not the most resliient AI player. I suspect a $300 share price will happen before a $100 share price. I’d call the stock one to consider.
