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Is Nvidia’s Growth a Bubble or a Tale for Ages?


Nvidia Corp (NASDAQ:NVDA) saw an unprecedented rise in its stock value with the AI revolution coming to the fore.

The stock has skyrocketed over 160% year-to-date and 238% over the past year. Over the past five years, Nvidia has climbed an astounding 2,900%, recently surpassing the $3 trillion market capitalization mark, and momentarily becoming the world’s largest company.

Going by these figures, it would be innocuous to say that since the beginning of the AI revolution in 2023, Nvidia is one such stock which keeps on giving as it made many millionaires in a short span of time. 

The rise and rise of Nvidia makes every investor and analyst question whether Nvidia’s growth is a fleeting bubble or a saga that will be recounted for ages.

Nvidia stock’s unprecedented rise comes on the back of its improved financial performance. In the first quarter of fiscal year 2025, Nvidia reported a 262% year-over-year revenue increase to $26 billion. 

At the same time. the company’s gross margin expanded by 13.8% points to 78.4%, while earnings per share (EPS) surged 461% to $0.61 on a non-GAAP basis. Nvidia’s significant 75% gross margin makes it highly profitable.

This rapid ascent in its financial performance has not gone unnoticed. Nvidia is the second-best performer among the S&P 500 companies this year, trailing only Super Micro Computer (NASDAQ:SMCI) Inc.

The stock surge has added $1.9 trillion to Nvidia’s market value, with the stock trading more than 22 times its estimated revenue for the next year, making it the most expensive stock in the S&P 500 Index.

But that’s not all as Nvidia continues to press the innovation button. Early this year, the chipmaker introduced its next-generation Blackwell AI chips, which come with a significant advancement in generative AI and accelerated computing. 

These chips are said to have the capacity to power trillion-parameter large language models (LLMs) to operate with up to 25 times less cost and energy consumption compared to the previous NVIDIA Hopper architecture.

Despite these impressive figures and innovative approaches by Nvidia, some analysts urge caution.

Analysts at New Street Research recently downgraded Nvidia’s stock to a neutral rating from a buy rating. 

They cited concerns about the stock being “fully valued” and suggested that the uptrend rally since last year may have run its course. New Street Research set a one-year target price for Nvidia at $135, slightly above Friday’s closing price of $125.82.

New Street Research’s concerns highlight a broader debate within the market: Is Nvidia’s growth sustainable, or is it indicative of an overvalued bubble?

They argued that further gains will only materialize in a best-case scenario where the outlook beyond 2025 improves significantly, a scenario he is not yet convinced will occur.

While Nvidia’s rise has been extraordinary, its high valuation and recent analyst downgrades suggest a potential cooling period.

The brokerage firm remains positive on other semiconductor stocks, such as Advanced Micro Devices Inc. (NASDAQ:AMD) and Taiwan Semiconductor Manufacturing Co. Ltd. (NASDAQ: TSM), due to their favorable valuations and growth trends.

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