Nvidia, a leading company in the field of artificial intelligence, recently reported its financial results on May 22. However, despite beating expectations, the stock has experienced a significant surge of approximately 20% in the three trading days following the announcement. Year to date, Nvidia’s shares have more than doubled, showing an impressive increase of around 120%. This surge has propelled Nvidia’s market value to $2.8 trillion, placing it just below tech giants like Apple and Microsoft in the S & P 500. Market observers have even pointed out that Nvidia is now bigger than the combined valuation of Amazon, Walmart, and Netflix.
Although Nvidia’s stock continues to soar, there is a growing concern among investors about the company being overvalued. Some market experts are questioning whether it is time to start taking profits, particularly as the broader market faces pressure from rising Treasury yields. Nvidia’s stock has surpassed both its 50-day and 200-day moving averages, and it currently boasts a price-to-earnings (P/E) ratio of 66. The CEO of Ritholtz Wealth Management, Josh Brown, has raised doubts about Nvidia’s astronomical valuation, stating that the company’s meteoric rise could eventually lead to a correction. He suggests that any signs of threats to earnings growth expectations for 2024 could serve as “correction fuel” for Nvidia and other large growth stocks linked to the AI industry.
Market analysts, such as Jonathan Krinsky from BTIG, have advised investors to consider trimming their gains in Nvidia. Krinsky highlights the possibility of a pullback to the previous breakout point in the range of 975 to 1,000, which could represent a 12% to 14% decline from the stock’s recent close. He points out that while betting against Nvidia is usually unwise, the stock’s recent surge above its upper Bollinger Band could indicate emotional buying and a potential blowoff top. The Bollinger Band is a technical tool used to assess the volatility of an asset, with the upper band suggesting overvaluation when breached.
Rob Ginsberg from Wolfe Research has noted Nvidia’s proximity to a measured move on a breakout of $1,150, although it has not yet reached that level. He highlights the stock’s dominance in the market indices and its deeply overbought condition, suggesting that it may be a suitable time to lock in some profits. The general euphoria surrounding Nvidia’s stock surge has raised concerns among analysts about the sustainability of this upward trend. It is crucial for investors to remain cautious and consider the potential risks associated with such rapid growth.
While Nvidia’s stock has experienced a remarkable surge in recent days, there are valid concerns about its valuation and the possibility of a correction. Investors should closely monitor the market conditions and assess the risks involved in holding onto Nvidia’s stock at such elevated levels. As the debate over the company’s valuation continues, it is essential for investors to make informed decisions and consider the potential consequences of a market downturn on their investment portfolios.
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