Nvidia stock price forecast: Here’s why I’d never buy NVDA

on Jun 4, 2023
Updated: Jun 8, 2023
  • Nvidia share price has surged by over 10k% in the past decade.
  • The company’s $1 trillion valuation is hard to justify.
  • There are memories of Cisco, which was once the biggest tech company.

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Nvidia (NASDAQ: NVDA) stock price has gone bonkers as I predicted in my earnings preview of the company. The shares soared to a high of $420.40, a record high, giving it a market cap of over $1 trillion. It also means that the stock has more than doubled in the past 12 months and jumped by over 10k% in the past decade. 

Nvidia short-sellers have been burnt over the years as the stock has gone parabolic. Therefore, it is still not recommended to short the company. For one, most Wall Street analysts are bullish on the stock. According to SeekingAlpha, Wall Street analysts have an average rating of 4.4, signaling that they are bullish on the company. And the bullish rating is still rising. Here are some of the reasons I am not buying Nvidia stock.

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Nvidia is extremely overvalued

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I believe that Nvidia is one of the most overvalued stocks in the market. It now has a market cap of over $1 trillion. For such a company, you may expect it to have billions of dollars in revenue and profits. Unfortunately, this is not the case. 

Nvidia’s revenue in 2022 (fiscal 2023) came in at $26.9 billion, flat from the previous year. In the trailing twelve months, the company’s revenue came in at $25.87 billion. While this is a lot of money, we see that Nvidia’s revenue is not growing that fast.

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At the same time, the company’s profits don’t justify the current valuation. Nvidia’s annual net profit peaked at over $9 billion during the pandemic. In the trailing twelve months, the company’s profit came in at over $4.7 billion. 

Therefore, these numbers mean that Nvidia is trading at 212x its 2022 profit. In other words, if you spent $1 trillion acquiring the company, it will take you 212 years to break even. 

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Nvidia forward growth does not justify this valuation

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Meanwhile, while investors are still bullish on Nvidia stock price, their outlook for the company’s revenue and profits don’t justify the valuation. Analysts believe that Nvidia’s revenue will be $113 billion in 2030. In other words, the company has a 2030 PE multiple of over 10x, which is not cheap. 

This lofty valuation is mostly because Nvidia is a story stock. While its revenue growth don’t support its valuation, the company has created a story about the future. It has now emerged as the biggest beneficiary of artificial intelligence because of its GPUs. 

While AI is a major industry, I don’t believe that it will lead to a major demand of GPUs and other semiconductors. Remember, a few years ago, many investors bought Nvidia shares because of its market share in Bitcoin mining.

Memories of Cisco

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The other reason I am not investing in Nvidia is the lingering memories of Cisco. At its peak during the dot com bubble, Cisco was the biggest company in the world, with a market cap of $536 billion. At the time, the idea was that Cisco would dominate the networking industry, which was expected to boom in the dot com era.

The opposite happened and Cisco stock price tumbled. Today, Cisco’s networking business has faced strong competition and the company has never recovered.

I believe that Nvidia will see market share erosion in the coming years. Most of this competition will come from AMD, whose Radeon GPUs are gaining some market share. Therefore, I believe that the company’s market share will be challenged in the coming years.

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