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Can Nvidia Sustain Its Explosive Growth Amid Bubble Fears?



Nvidia’s exceptional ascent has been a major force behind the stock market reaching new heights, igniting discussions around a potential bubble among Wall Street circles.

The skyrocketing interest in artificial intelligence (AI) technologies has positioned Nvidia’s semiconductors as indispensable, catapulting the company to become the stock market’s standout performer.

How Much Has Nvidia’s Stock Risen?

Since October 14, 2022, Nvidia’s stock has experienced a more than sevenfold increase, positioning it as the third most valuable company in the U.S. with a market capitalization surpassing $2 trillion, making it an excellent case study for anyone interested in learning how to pick a stock.

The company’s market value soared by nearly $280 billion within just two trading days following its impressive fourth-quarter earnings report on February 21. It achieved the $2 trillion mark from $1 trillion in merely 180 trading days, a milestone that took tech giants Apple and Microsoft over 500 trading days to reach.

Nvidia has also captured the attention of retail investors, becoming a favored stock. Out of 59 analysts monitoring the company, 54 recommend buying or outperforming, based on data from FactSet.

The broader indexes have also felt Nvidia’s impact. The Nasdaq Composite achieved a new high for the first time since 2021, and the S&P 500 has marked 15 record highs in 2024, with both indexes appreciating significantly over the last 18 weeks.

Why Is Everyone Talking About a Potential Bubble?

When you see a stock price rise this quickly, it’s natural to wonder if it’s sustainable. Some experts on Wall Street are whispering about the “B word” — a bubble. It’s the idea that the stock’s price might be inflated beyond its real value, which could lead to a sharp decline if the bubble bursts. The excitement isn’t just about Nvidia; it’s about the whole sector of artificial intelligence (AI) technology. Nvidia’s chips are in high demand because they’re crucial for AI development, making their stock a hot commodity.

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Is the Enthusiasm Justified?

Despite the bubble talk, there’s a solid reason behind the enthusiasm. Nvidia isn’t just riding the AI wave; they’re producing tangible results. Their profit skyrocketed to $12.29 billion in the most recent quarter, up from $680 million in the previous period. This jump is not just about numbers; it’s about Nvidia proving its worth in a booming industry.

Moreover, their stock, despite the rapid rise, is trading at a price-to-earnings ratio that some might argue is quite reasonable, especially when compared to their own past performance and the current market average, trading at 32 times its anticipated earnings over the next 12 months, below its two-year average of 38 times and against the S&P 500’s multiple of 20.6.

This suggests that the excitement around Nvidia may not be unfounded speculation but rather confidence in a company that’s both “talking the talk and walking the walk.”

Can Nvidia Keep Up the Pace?

This is the million-dollar question. Analysts expect Nvidia to continue growing, with projections of $107 billion in revenue for the upcoming fiscal year. However, there are concerns. The tech industry is known for its rapid changes and competition. Some worry that Nvidia’s growth might slow if demand from big tech companies decreases or if new competitors enter the market with similar or better offerings.

Fred Hickey, a seasoned observer of the tech industry, cautions that Nvidia, like many tech companies, could face periods of boom and bust. He notes Nvidia’s historical stock price fluctuations as evidence of its volatility.

What sets this moment apart from previous tech booms (and busts) is the nature of the investments. Unlike the dot-com bubble, where companies went bust after much hype, the current enthusiasm is for a company showing real profit and growth in a transformative technology sector—AI.

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Moreover, the lack of a rush of AI-themed IPOs (Initial Public Offerings) suggests that this isn’t a blind gold rush but a more measured interest in solid companies leading the way in AI.

What’s the Bottom Line?

While some are cautious, calling for investors to possibly “take some cream off the top,” the overall sentiment remains optimistic. Very few are betting against Nvidia, indicating a general belief in the company’s potential for continued growth.

In the end, Nvidia’s story is a fascinating snapshot of where you are in the world of tech investing—a world captivated by the possibilities of AI, but also mindful of the lessons from past bubbles. Whether Nvidia will continue its meteoric rise or face challenges remains to be seen. However, one thing is clear: Nvidia is at the forefront of a significant technological shift, and many are eager to see where it leads.


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