The astronomical growth of Nvidia (NASDAQ:NVDA) has propelled the AI chip giant to incredible heights. With a market cap of just below $3 trillion, a stock price that has breached the $1,200 barrier, and no true competition threatening its market-leading status, NVDA is certainly sitting pretty.
The driving force behind Nvidia’s remarkable performance lies in its Data Center segment, fueled by the surging demand for generative AI. Indeed, with the company situated “on a one-year rhythm” of new chips, it is no wonder that the AI darling is attracting so much positive attention.
Moreover, tomorrow, on June 10, Nvidia is poised to implement a 10-for-1 stock split, aiming to provide a more accessible entry point for investors of all stripes and sizes.
However, amidst the optimism, value investor Joseph Parrish warns against staking a position at current levels.
“The valuation of Nvidia stock raises questions about its long-term returns and suggests that other businesses utilizing AI may offer better investment opportunities,” writes Parrish. While the bullish sentiment surrounding Nvidia is understandable “it’s difficult to get a good, long-term return if everyone wants to buy the same stock.”
Instead, the investor posits that there are other opportunities to ride the AI wave to growth. “Since plenty of other businesses will benefit from AI but haven’t been so pumped up, I don’t see why we need to rush to buy NVDA,” argues Parrish.
Ultimately, Parrish underscores the importance of diversification, suggesting that belief in Nvidia’s product should extend to supporting the array of businesses set to benefit from its innovations.
Parrish believes that NVDA’s stock price does not reflect realistic numbers going forward, and the investor casts doubts on the capacity of the market to fully support massive future growth.
“There is a finite value on what such a business is worth, and the current valuation implies future cash generation exceeding an economy that can even provide it,” the investor summed up.
To this end, Parrish rates NVDA shares as a Hold (i.e. neutral). (To watch Parrish’s track record, click here)
How does Parrish’s cautious stance compare to the sentiment on the Street? NVDA enjoys widespread favor among analysts, with 37 out of 40 reviews rating it as a Buy, while only 3 suggest a Hold. However, the stock’s recent gains have driven the price up to $1,208.88, offering limited upside potential. (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.
