Cathie Wood said NVDA stock is priced ahead of the curve, trading at 25 times this year's expected revenue.
Cathie Wood of Ark Invest, known for her bold bets on new-age tech companies, justified their exit from Nvidia (NASDAQ:NVDA) earlier this year. Last Wednesday, May 24, NVDA stock surged more than 20% in a single day, approaching the $400 level. In a tweet on Monday, May 29, the ARK Innovation ETF (ticker: ARKK) manager defended the exit from the stock. Wood added that the world’s most valuable chipmaker was “prematurely priced.”
ARKK exited Nvidia earlier this year, in January 2023, and the stock has since more than doubled, with a valuation approaching $1 trillion. However, Wood noted that Nvidia shares trade at 25 times estimated sales for the current fiscal year, as investors are enthusiastic about Nvidia's foray into the artificial intelligence industry. In comparison, that's six times that of its peers in the Philadelphia Semiconductor Index and 12 times that of Microsoft Corp.
However, we see that NVDA stock has been trading at a premium since the pandemic. But after the strong price surge this year, the gap looks more pronounced. On the other hand, some analysts also believe that the outlook for chips has not fully improved amid tepid demand for consumer electronics.
"Nvidia's recent results have raised expectations for AI servers," analysts including Takeru Hanaya at SMBC Nikko Securities wrote in a note. Still, inventory adjustments and continued price cuts in the chip industry suggest "a contrast between AI expectations and overall market weakness."
Nvidia's foray into artificial intelligence
Huang, who co-founded Nvidia in 1993, still runs the company. Over the years, Nvidia has become known as a leading chip maker that caters to different industries, including gaming and cloud computing.
At the Computex trade show on Monday, May 29, Huang demonstrated a range of AI products covering new robot designs, gaming features, advertising services and network technologies. In addition, Huang also showed off Nvidia's AI supercomputer platform called DGX GH200, which will help the tech company create a successor to the popular platform ChatGPT. In a note to investors, independent analyst William Keating wrote:
"We essentially believe Nvidia's stock is in bubble territory, regardless of potential future growth. In other words, we believe the train has already left the station, and we see little point in chasing it along the tunnel at this stage."
Nvidia is much more expensive than its peers based on the amount of cash it generates. Nvidia is valued at more than 140 times cash flow, more than its peers Advanced Micro Devices Inc. and Monolithic Power Systems Inc., which have cash flow valuations of less than half of Nvidia’s.
