Nvidia stock price forecast: learn from Tesla, Cisco and avoid

Nvidia (NASDAQ: NVDA) stock price has been in a remarkable bull run, making it one of the best-performing companies in the US. 

It has surged from less than $6 in 2000 to over $1,100 today while its market cap has jumped to over $2.8 trillion, making it the third-biggest company in the world after Microsoft and Apple. If the trend continues, it will pass Apple this week and attain a $3 trillion valuation soon.

Nvidia stock price chart

Nvidia’s growth is accelerating

Nvidia’s path of becoming the third-biggest company accelerated after the company published strong financial results, boosted its dividend, and upgraded its forward guidance.

The company’s total revenue surged by over 200% in the first quarter to over $24 billion and analysts now expect that its annual revenue will get to over $120 billion this year and $158 billion in 2025. These are huge numbers for a company that made over $60 billion in 2023.

Nvidia is benefiting from the current trends in the artificial intelligence (AI) industry that is expected to continue accelerating. Just this week, Elon Musk’s xAI raised over $6 billion from investors and attained a valuation of over $24 billion. 

Nvidia’s growth has benefited from the fact that its GPUs are superior than those of companies like AMD and Intel. It also has a secret sauce in its software program known as Cuda, which enables chips designed for graphics to speed AI applications.

Still, the biggest concern about Nvidia is that its valuation has gotten extremely stretched in the past few years. It has a price-to-sales ratio of 32.9 and a forward multiple of 21. In contrast, Apple has a trailing price-to-sales ratio of 7.7 and a forward figure of 7.5 while Microsoft’s figures are 13.5 and 13.1, respectively.

Nvidia has a forward PE multiple of 41, double that of the S&P 500 index. This is somewhat understandable because the index’s revenue growth stands at about 6%. 

Lessons from Tesla and Cisco

Cisco and Tesla shares

My biggest concern about Nvidia is that it is showing the irrational exuberance that we saw with Tesla and Cisco at their peaks.

For starters, Cisco was once the biggest company in the world during the dot com bubble. At the time, the view was that the firm would be the biggest beneficiary of the then-digital environment. 

However, the stock then plunged from a high of $55.5 in 2000 to a low of $5.67 in 2002. It has taken over two decades for the stock to bounce back.

Tesla was in the same boat a few years ago. At the time, most analysts believed that Tesla would rule the EV industry. While it has a strong market share in the EV industry, it has faced significant competition from the likes of BYD and Nio. Today, Tesla’s shares have tumbled by over 55% from its all-time high.

The same situation could happen in Nvidia as products made by other companies come to the market. It was reported recently that Nvidia was forced to slash prices in China because of the rising competition from the heavily sanctioned Huawei. 

Additionally, I suspect that other chip manufacturers like Intel and AMD will catch up in the next few years. Therefore, while Nvidia’s momentum will continue in the near term, I suspect that the stock will retreat in the next few years.

Technically, I believe that Nvidia stock has moved into the markup phase of the Wyckoff Method, where demand is usually higher than supply. It is usually followed by the markdown phase where the situation reverses.