Up 4x in 2 years seems like an indication it is a bubble, not the opposite. There's really no way of knowing when a bubble is going to pop, there's no reason an overvalued stock can't become even more overvalued.
I think we need to first straighten out the terms.
What really is a bubble? In my view, if we want to get strict with this, a bubble is really an enlargement in asset prices that is not backed by fundamentals.
Now as it stands, Nvidia's recent growth has been to date backed by fundamentals due to increases in free cash flows. However, its market capitalization is based upon the fact that demand for what they produce continues to rise notwithstanding competition.
The problem is, Nvidia's customers who are responsible for their revenue growth are not seeing meaningful ROI and how steep will the barriers to entry remain? Its questionable if Nvidia can maintain existing barriers to entry (let alone making those barriers any steeper) to sustain the market power it enjoys over a long time horizon to justify its present value. Therein lies the problem with Nvidia's valuation.
There is also no evidence that shows Nvidia's projects have real options embedded within them. Now of course, lets get real - who is really doing this level of analysis? Very few, and we are seeing this play out with jumps in the stock price with no tangible justification.
utyop22|6 months ago
What really is a bubble? In my view, if we want to get strict with this, a bubble is really an enlargement in asset prices that is not backed by fundamentals.
Now as it stands, Nvidia's recent growth has been to date backed by fundamentals due to increases in free cash flows. However, its market capitalization is based upon the fact that demand for what they produce continues to rise notwithstanding competition.
The problem is, Nvidia's customers who are responsible for their revenue growth are not seeing meaningful ROI and how steep will the barriers to entry remain? Its questionable if Nvidia can maintain existing barriers to entry (let alone making those barriers any steeper) to sustain the market power it enjoys over a long time horizon to justify its present value. Therein lies the problem with Nvidia's valuation.
There is also no evidence that shows Nvidia's projects have real options embedded within them. Now of course, lets get real - who is really doing this level of analysis? Very few, and we are seeing this play out with jumps in the stock price with no tangible justification.