Investors cheered and raised glasses when the soaring Nvidia (NASDAQ: NVDA) share price pushed the market cap beyond $5trn.
It was just at the end of October. And in the short time since, it’s fallen back 12%. That knocked around $500bn off the huge market cap in not much more than a week.
If that sounds like a lot of money, well, it is. Just that $500bn alone is enough to buy the whole of AstraZeneca plus HSBC Holdings at today’s prices — the two biggest companies on the FTSE 100.
The bears are out
I’ll tell you one person who doesn’t see the Nvidia share price pushing higher and higher right now. It’s Michael Burry, founder of hedge fund Scion Asset Management — and the subject of the movie ‘The Big Short’.
He just revealed short positions in Nvidia and Palantir Technologies, to the tune of $1.1bn. Palantir, which develops data analysis software, has already fallen 8.5% from its 52-week high on 3 November.
Nvidia is the chip supplier of choice to the majority of today’s big AI companies. In fact, outside of China, it’s often the only realistic choice. So any weakness in AI optimism is bound to spark fears that demand for Nvidia chips might not match sky-high expectations.
Ask an expert
I keep coming back to something Sam Altman, CEO of OpenAI said recently: “Are we in a phase where investors as a whole are over-excited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes.”
He thinks some investors are going to lose big money.
I still see Nvidia having a very strong future supplying the computing power for the AI business in the years ahead. But the share price looks geared way beyond current chip demand. That includes hoped-for demand from AI companies that won’t make it — and some surely won’t.
On the face of it, the Nvidia valuation doesn’t look excessive. Analysts have a price-to-earnings (P/E) ratio of 43 for 2026, dropping as low as 23 by 2028. For a stock soaring so much in such a relatively short time, that seems surprisingly low. And by growth stock standards, I think it looks cheap.
Beyond the headline
But today’s valuations are based on forecasts that see Nvidia’s earnings per share nearly trebling by 2028. Forecasters rely in large part on current optimism, in turn rooted in massive spending plans by the big AI players. Are they stretching it a bit?
Part of me agrees with Sam Altman that AI is the most important thing to happen in a long time — just as the internet was back in the dotcom boom at the turn of the century. But another part of me agrees with Altman that investors are indeed over-excited about AI too.
So what am I going to do? The same as I did in 1999. I’ll sit back and watch what happens — and hope to pick up some top-quality shares cheaper, hopefully including Nvidia.
