- Aswath Damodaran dumped his Nvidia stake because he couldn’t justify holding it as a value investor.
- “The run up has been just so astonishing that I cannot in good conscience hold on to it,” he told CNBC.
- He told Barrons that Nvidia is pushing the “absolute limit of what sustainable value is.”
Nvidia’s remarkable performance indeed underscores the growing significance of artificial intelligence in various industries and its potential for driving substantial growth for companies operating in that space.
As AI continues to advance, the demand for high-performance computing and specialized hardware like Nvidia’s GPUs is expected to surge, further fueling the company’s growth trajectory. Investors are evidently recognizing Nvidia’s position as a key player in this burgeoning market, hence the significant rally in its stock price.
Aswath Damodaran’s perspective offers a contrasting view, highlighting concerns about Nvidia’s current valuation relative to its future prospects. His emphasis on estimating the intrinsic value of assets suggests that he believes Nvidia’s stock price may have become disconnected from its underlying fundamentals. While Nvidia’s position in the AI market is undoubtedly strong, Damodaran appears to question whether the current stock price adequately reflects the company’s potential for future growth and profitability.
His decision to cash in his Nvidia stake after its significant rally indicates a cautious approach, particularly for an investor focused on identifying undervalued assets. Damodaran’s stance suggests that he sees limited upside potential in Nvidia’s stock at its current price levels, possibly due to concerns about the company’s ability to maintain its dominance in the AI market or the possibility of market saturation.
Overall, Damodaran’s perspective underscores the importance of carefully assessing a company’s fundamentals and future growth prospects when evaluating its stock price, particularly in high-growth sectors like AI where expectations can sometimes outpace reality.
“AI has been this buzzword that pushes every company forward. The two companies that have really something material to show for it are Microsoft and Nvidia and both have benefited — Nvidia in particular,” Damodaran told CNBC.
“The story makes sense, the pricing doesn’t,” he added.
Still, Damodaran thinks AI will make changes that have the potential to dramatically shift the way people live and work – “and those changes always have valuation consequences.”
“AI is changing the conversation and I think it has the potential unlike with the Cloud or Metaverse, where I felt I could not quite see the magnitude of the business that came out of both worlds,” he told CNBC.
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