It’s undeniable that Nvidia (NASDAQ:NVDA) is a darling of the market now. NVDA stock seems unstoppable as the company is a major supplier of hardware for generative artificial intelligence applications.
However, with so much positive news and future success already priced into the shares, cautious investors shouldn’t get too excited about Nvidia now.
Last week, I felt like a lone voice when I warned people about the “bubble trouble” with Nvidia. However, I recently discovered a couple of analysts who seem to agree with my assessment.
Ultimately, you’ll have to make your own decision, but there is a legitimate argument to be made against investing in Nvidia at its current share price.
Nearly Everybody Loves NVDA Stock
It’s great news that practically everybody likes NVDA stock, right? Not necessarily, as I firmly believe that a crowded trade usually isn’t the winning trade.
As I’m writing this, Nvidia’s GAAP trailing-12-month price-to-earnings (P/E) ratio is over 200x. Just to give you a benchmark, the sector median P/E ratio is around 25x.
Also, Nvidia’s TTM price-to-book and price-to-sales ratios are roughly 10 times the respective sector medians.
Now, Nvidia has to somehow deliver results in line with those valuations. Plus, the company has to live up to its lofty current-quarter revenue guidance of $11 billion (compared to the prior quarter’s actual result of $7.192 billion in revenue).
This won’t be impossible, but it also won’t be easy. Besides, contrarians should be on alert when they discover that options traders are placing overwhelmingly bullish bets on NVDA stock, and the cover of Barron’s literally has a picture of a bull on it.