Nvidia (NASDAQ:NVDA) shares reached new all-time highs last week, overtaking AAPL to become the world’s largest company by market cap. With nearly 200% growth in its stock price in 2024, the AI chipmaker’s outstanding performance has left naysayers with little ground to stand on.
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The “insane” demand for its next-gen Blackwell GPUs – already sold out through next year – suggests Nvidia’s growth trajectory shows no signs of slowing down.
Nvidia’s success was further validated by its recent inclusion in the Dow Jones index. This development could add more upward momentum, as index funds and institutional investors tracking the Dow will now be required to take a position in Nvidia shares if they haven’t already.
Despite the good tidings, investor Vladimir Dimitrov advises caution, urging investors to beware of the “Curse of Dow additions.”
Dimitrov explains that companies newly added to the Dow Jones index often underperform those they replace, as high valuations driven by market enthusiasm can create expectations that are hard to fulfill.
The investor points out that sentiment around NVDA has become overwhelmingly optimistic, pushing its valuation to a forward P/S multiple higher than any of its S&P 500 peers.
“The market is pricing in a scenario where current growth rate is sustained beyond the near-term,” Dimitrov notes, adding that he considers this “a low probability scenario.”
While Dimitrov does not advocate selling NVDA shares, calling it “foolish to go against the herd at this point,” he also doubts that Nvidia will outperform the broader market, ultimately rating NVDA a Hold (i.e. Neutral). (To watch Dimitrov’s track record, click here)
The views among Wall Street analysts are significantly more bullish. With 38 Buy and 3 Hold ratings, the heavily-covered stock holds a consensus Strong Buy rating. However, its 12-month average price target of $154.28 has a fairly limited upside of 4.5%, which would seem to hint that the Street also believes that the company is inching closer to its near-term ceiling. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
