I love Nvidia (NASDAQ:NVDA) and NVDA. But can a stock be worth 17 times the income while unemployment is close to 20% and Dow Jones Industrial Average still in bear market territory?
Nvidia was scheduled to open its markets on May 8 at $ 307.75, just $ 8 per share from its historic peak in February. In addition, its market capitalization is now over $ 183 billion and the price-to-earnings ratio of 66. The stock is also well above its one-year price target of $ 300 per share.
Of course, the price targets may change. They are only a guess of analysts. Piper Sandler’s Nvidia sires have just increased their target on Nvidia to $ 350, based on the completion of their acquisition of Mellanox. In addition, our Matt McCall also calls the NVDA action a “buy”. I even have stocks in my own retirement account.
So with all of that in mind, let’s take a closer look at the NVDA stock.
Cloud stocks like Nvidia seem invulnerable to the new coronavirus as the cloud continues to prove itself.
That said, Nvidia is at the center. Its graphics chips and operating software are the best way for clouds to upgrade for artificial intelligence and the Internet machine. Its acquisition of Cumulus Networks, which manufactures Linux-based network switches, will drive the growth of its data center.
Additionally, Nvidia started out as a gaming chip company. The rapid refresh required to make games appear realistic is also key to making the clouds responsive at the edge of the network. That said, the Cloud Czars – led by Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) – buy equipment with both hands. Cloud capacity is limited by a “rail rush” for coronavirus, which has squeezed years of new demand into months. It made the dream of mass work from the domestic market a reality and helped the economy weather the pandemic.
That said, Nvidia is already ahead of the curve with a new development approach called MLops. This combines development operations with machine learning to automate software development itself.
Approaching the limit
However, there is a limit. Nothing can grow to the sky. Clouds reduce costs, they reduce the need for jobs, but there has to be an economy before they can serve.
But, this economy is collapsing.
In addition, analysts expect Nvidia to announce earnings per share of $ 1.68 on revenues of $ 2.8 billion later this month. That said, these are roughly the same numbers as those reported for the previous quarter. Sales could pick up from here, but the clouds were built on the idea of cutting ground costs. The biggest cloud companies, like Alphabet (NASDAQ:GOOGL), also become chip developers. Therefore, there will always be competition for Nvidia.
Based on its growth rate and the underlying global economy, NVDA stock becomes more expensive than, what exactly? Nvidia shares have done more than twice as well as SPDR Gold Trust (NYSEARCA:GLD). In addition, diamond sellers LVMH (OTCMKTS:LVMUY) are down almost 20% over the year, while Nvidia shares are up 32%. Nvidia also tripled the gain of Gladstone Land (NASDAQ:EARTH), the real estate investment trust (LAND).
The cloud rush makes sense from a business and practical point of view. However, the hustle and bustle is on the verge of becoming a mania – and such things always end badly.
The Bottom Line
Calling Nvidia shares today at full price is an understatement. Investors are piling up in the cloud because nothing else works. Businesses of all kinds cut costs with the cloud. The clouds are deflationary and, ultimately, they kill jobs.
The clouds justify the love of investors. They pay for themselves, but there must be an economy for them, otherwise the savings they generate are just deflation. The dramatic increase in the Fed’s money supply means there is a ton of cash looking for a place to go.
Overall, a cloud crash could occur. And when it does, Nvidia will not be immune.
Dana Blankenhorn has been a financial and technological journalist since 1978. His latest book is Technological Big Bang: yesterday, today and tomorrow with Moore’s law, tests on technology available on the Amazon Kindle store. Write to him at [email protected] or follow him on Twitter at @danablankenhorn. At the time of this writing, he held shares in MSFT, AMZN and NVDA.