'Dean of Valuation' Aswath Damodaran says the story behind Nvidia's stock surge makes sense but its current price doesn't

  • The narrative behind Nvidia’s stock rally makes sense but its current share price doesn’t, according to Aswath Damodaran.
  • The ‘Dean of Valuation’ thinks Nvidia would have to dominate the whole AI market to justify its current price. 
  • There’s too little upside left to the chipmaker’s stock, the NYU finance professor told CNBC.

Nvidia’s spectacular 185% rally has been the highlight of the US stock market this year. The chipmaker outperformed every other S&P 500 stock as investors boosted bets it will benefit substantially from the artificial-intelligence boom.

That story makes sense, but the stock’s current price of around $415 doesn’t, according to NYU finance professor Aswath Damodaran, who earned the nickname ‘Dean of Valuation’ for his focus on estimating the value of assets. 

Nvidia would have to “decimate or dominate the entire AI market for it to be justifying this price,” Damodaran told CNBC on Tuesday. It’s a bet he’s just not willing to take and there’s too little upside left to the stock, according to him.

Damodaran cashed in his Nvidia stake after the chip maker’s scorching rally – when it touched a $1 trillion valuation for the first time at the end of May and joined a handful of companies including Apple, Microsoft, Google parent Alphabet, and Amazon that have reached the mark.

He told news outlets at the time that as someone who specializes in spotting stocks that trade below their intrinsic value, he couldn’t justify holding on to Nvidia shares.

“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.