Nvidia Joins Trillion-Dollar Market Cap Club, Is Stock in a Bubble?

Highlights

• Nvidia’s market cap has surpassed $1 trillion, joining a select group of companies.
• Nvidia’s chips are used in the burgeoning AI market, fueling demand.
• Tech bull Cathie Wood believes NVDA stock is overpriced.

The bulls are piling into Nvidia stock amid its exposure to the burgeoning AI market. The chipmaker’s stock has just reached a $1 trillion market cap, which has ignited a firestorm among the bulls. But it’s also igniting fears that NVDA stock could be trading in a bubble that’s about to burst.

Nvidia is fueling a rally in the broader stock market, one that’s also receiving oxygen from relief over a debt deal among U.S. lawmakers that prevented a default. Nvidia’s strong earnings results last week are spilling over into today’s trading.

At last check, Nvidia’s stock is rallying over 5% to over $410 per share, boosting the market cap to $1 trillion. As Nvidia joins the trillion-dollar market-cap club, it becomes one of a select group of stocks that have managed to do so.

Nvidia is benefiting from the hype over the AI craze in which its H100 chips are at the center of the generative chatbot wars. The launch of the pricey chip, which costs roughly $40,000 apiece, coincided with the rise of ChatGPT. Demand for its chips has led Nvidia to raise its outlook for the summer quarter to $11 billion, far exceeded consensus estimates.

NVDA Shares

Nvidia stock is currently trading at approximately 42x its forward earnings, which isn’t too farfetched from its long-term average. Its PE ratio is over 200, which is high but also a reflection of bullish sentiment among investors for the company’s continued earnings growth.

All $NVDA haters have missed all the upside.

The company now trades at a 42x forward earnings. That's near it's long-term average.
Nvidia now trades near its average forward PE since mid-2016.

Why you shouldn't believe the "AI BUBBLE" alarmists in 2 graphs. Facts > opinions. pic.twitter.com/7uyr6hCA5U

— From Growth To Value (@FromValue) May 29, 2023

The price is too pricey for one tech bull. ARK Invest CEO Cathie Wood says that NVDA shares are “priced ahead of the curve.” This is because the stock is priced at 25x expected revenue. The ARKK fund reportedly exited its NVDA position in early 2023. Wood reminds investors that NVDA isn’t the only AI play and says there are “dozens” of stocks that will be “AI winners.”

Nvidia is no stranger to hype and has also been a key beneficiary of bitcoin mining, where its chips are similarly used in BTC mining machines that compete for supply with gaming companies. This chipmaker has a history of being in the right place at the right time.