Asia Wrap : It’s Not a Bubble , It Simply Isn’t

Stephen Innes
Published: Feb 23, 2024, 07:41 UTC

For those diligent skeptics and vigilant bubble watchers, the latest developments regarding Nvidia might feel like adding salt to the wound.

Nvidia Chip, FX Empire

In this article:

Riding the Nvidia Wave: The Risks of Shorting Bubbles

The signs were clear, almost unmistakable, that Nvidia was poised to outperform expectations. The only question was how wide a margin was and whether this performance would propel the stock upward.

Despite the genuine surprise expressed by some market participants regarding the speed and extent of the rally, it’s essential to remember one golden rule: don’t short bubbles.

I’ve emphasized this point previously and made it explicitly clear to my investors: we will never short a bubble. Not only is it complicated to time the market peaks accurately, but the odds are stacked against you. You’re likely to be wrong nine times out of ten, resulting in substantial losses before potentially hitting the jackpot.

Nvidia’s Valuation: Debunking the Bubble Myth at 33 Times Earnings

Betting against the Nvidia “bubble,” figuratively or literally, presents another challenge. As earnings accelerated, the perception of a bubble surrounding Nvidia shifted. Before the company’s Q1 report last year, which became widely influential, the stock traded at approximately 65 times earnings. However, by the beginning of 2024, it was trading at around 25 times earnings. Of course, many will look at the first week of January and imagine what could have been.

Even after the year-to-date surge leading into the fourth-quarter results, Nvidia was still trading at “just” around 33 times earnings. While not inexpensive, it doesn’t fit the criteria of a proper bubble.

If the entire market trades at 33 times earnings, that might signal a bubble. However, it’s essential to clarify that a stock with remarkable growth, such as Nvidia, increasing sales by 265% and profits by nearly 500%, isn’t indicative of a bubble at 33 times earnings. It simply isn’t.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Stephen Innescontributor

With more than 25 years of experience, Stephen Innes has  a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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