Not everyone is hyping Nvidia earnings. Here's why one analyst says the chip maker is 'ridiculously' overvalued.

Not everyone is hyping Nvidia earnings. Here's why one analyst says the chip maker is 'ridiculously' overvalued.
Nvidia's stellar second quarter earnings report still doesn't justify its current stock price, according to David Trainer.SAM YEH/AFP via Getty Images
  • Nvidia stock is way too expensive, even taking into account its stellar second quarter earnings, one analyst says.

  • The chip maker pulled a record $13.5 billion in revenue, causing its stock to jump 7%.

  • The firm would need to grow revenue 20% for the next 25 years to justify its current price, according to David Trainer.

Nvidia's blowout earnings report for the second quarter has everyone on Wall Street seemingly sold on the limitless potential of the top chip maker. Some are even calling Nvidia "the most important company to civilization."

David Trainer, CEO of research firm New Constructs, is not among them.


"Nvidia is the stock market's new Tesla, where the market blindly assigns a ridiculously high and unrealistic valuation," Trainer said in a statement on Thursday. "We're not denying that Nvidia is great company, but we are pointing out that its valuation is beyond lofty and unjustifiable."

His comments follow the chip maker's second quarter results, in which it said it pulled in a record $13.51 billion in revenue over the last three-month period. That's 20% above the expected $11.22 billion in revenue, and an 101% increase from revenue recorded last year, the firm said.

Nvidia stock, meanwhile, jumped as much as 7% to $506 a share in early Thursday trading. The stock pared gains to about 3% shortly after the opening bell.

But the results from the last quarter aren't enough to justify the billions Nvidia has tacked on in market cap, Trainer said. Given its current price, the company would need to grow its revenue by around 20% a year over the next quarter century, a tough prospect even in the face of booming AI demand.

What's more, Nvidia is likely to face more and more competition as time goes on, Trainer said. While Nvidia may look like the top dog and the only game in town with its H100 GPUs in huge demand, it likely won't always be the only player in the space with the tech required to power the AI revolution.

"It makes absolutely no sense to be buying shares of Nvidia at its current valuation," Trainer said. "Nvidia's ridiculously valuation achieved over such a very short period of time reminds us that 'fear of missing out' is alive and well and that is a very dangerous phenomenon for investors that never ends well."

The company has quickly become one of the leaders in the arms race for artificial intelligence technology, with investors pushing its stock up 229% year-to-date. Its success is reminiscent to that of Tesla in late 2021, when the EV-maker rose to a dizzying $407 a share before plunging 65% and losing $700 billion in market cap in 2022.

Other Wall Street commentators have also grown critical of the rally in tech stocks this year, with the "magnificent seven" mega-cap firms driving the bulk of the gains in the S&P 500 in the first half of 2023. The AI craze in particular could be driving mini bubble in the stock market, according to Bank of America, which has warned that the massive rally in the space is already showing signs of fizzling out.

Read the original article on Business Insider