Home Editor's Picks Nvidia stock, AI not yet in a bubble – Goldman Sachs

Nvidia stock, AI not yet in a bubble – Goldman Sachs


Nvidia stock, AI not yet in a bubble – Goldman Sachs By Investing.com

Breaking News


AuthorVahid KaraahmetovicStock Markets

Published Mar 15, 2024 06:37AM ET

© Reuters

Nvidia stock (NASDAQ:NVDA) has skyrocketed more than 520% since the start of 2022 and 84% this year alone. As a result of this blazing growth, the chipmaker is the third most valuable company in the world today, only behind Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL).

Nvidia stock rally fuels debate

Among other catalysts, Nvidia stock’s explosion over the past year or so is mainly attributed to its vital role in the ongoing artificial intelligence (AI) boom.

Just as the engine was the pivotal technology that powered the automotive industry, propelling it forward and transforming every aspect of transportation and manufacturing, Nvidia’s high-end graphics processing units (GPUs) serve as the critical foundation powering leading AI products such as OpenAI’s ChatGPT.

But while the growth of Nvidia stock and the AI sector is no short of remarkable, the pace at which it is happening and the broader economic context have led investors and analysts to wonder if this could be another market bubble.

In other words, they are questioning whether the high valuations for the chipmaker and other AI-driven tech giants can be sustained in the long term.

Though there are some who are convinced it’s a bubble, Citi analysts believe “this is one of the rare times it’s different,” suggesting that 2024 “is shaping up to be a repeat of 1999.”

Discussing whether AI is in a bubble phase, a Citi analyst commented, “Yes…but it could last into 2025.”

“We would note that these bubbles can last a year or longer, similar to what happened in 1999 with the tech bubble,” he said.

The analyst mentioned that things back then ended poorly, and the current situation could also end poorly.

Despite this, the analyst noted that market valuations might remain high for an extended period, as long as the financial forecasts continue to show rapid growth. He emphasized that, at the time, market valuations did not start to decline until well into the cycle.

Is AI a bubble? Goldman says no

Weighing in on this matter, Goldman Sachs strategists said the AI optimism within the U.S. stock market is quite high, however, it has not yet reached the peaks seen during the Tech Bubble or the period following COVID-19.

Notably, the strategists’ projected long-term growth rate has increased to 11%, surpassing the historical average of 9%. Still, this rate remains beneath the 16% witnessed during the Tech Bubble and the 13% observed in late 2021.

Similarly, for the top 10 Technology, Media, and Telecom (TMT) stocks, Goldman analysts have observed that the expected earnings per share (EPS) growth for the third fiscal year averages 15%.

This figure is slightly higher than the median of 11% for the S&P 500. Nonetheless, it doesn’t match the 24% expected growth rate of a typical TMT stock in March 2000 or the 18% seen in October 2021.

“Third, the valuation of the largest 10 TMT stocks equals 28x, which pales in comparison to the peak of the Tech Bubble (52x) and late 2021 (43x),” they added.

Regarding Nvidia specifically, the stock’s price-to-earnings (P/E) ratio has remained approximately the same since the beginning of 2023, Goldman strategists pointed out, “with nearly all of its return attributable to a higher stream of earnings.”

Nvidia stock, AI not yet in a bubble – Goldman Sachs

Related Articles

Our Apps

Terms And Conditions
Privacy Policy
Risk Warning
Do not sell my personal information

© 2007-2024 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Related News