Is NVIDIA Stock a Bubble? Should You Buy Anyway? | Summary and Q&A

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May 30, 2023
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Let's Talk Money! with Joseph Hogue, CFA
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Is NVIDIA Stock a Bubble? Should You Buy Anyway?

TL;DR

Nvidia stock surges amidst AI bubble concerns, but historical examples show growth potential in highly valued stocks like Tesla and Amazon.

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Questions & Answers

Q: Is Nvidia's stock in a bubble due to its high valuation and recent surge?

Nvidia's stock has certainly experienced a significant increase in value, and some analysts are cautioning against a potential bubble. However, past examples show that highly valued stocks like Tesla and Amazon have been successful in the long run, despite initial concerns.

Q: How can investors buy expensive stocks without exposing themselves to market risks?

Investors can set a maximum price-to-sales ratio or price-to-earnings ratio they are willing to pay for a stock. This approach helps establish a limit and prevents overpaying for stocks. Additionally, considering the price-to-earnings-to-growth ratio (PEG ratio) can incorporate growth and provide a better perspective on valuation.

Q: What are some stocks to watch this week?

C3.ai (AI), VMware (VMW), and Salesforce Inc. (CRM) are notable stocks reporting earnings this week. C3.ai's valuation may be a cause for concern, while VMware's potential acquisition by Broadcom could impact its stock. Salesforce Inc. is expected to report strong earnings growth.

Q: How has the market performed across different sectors this year?

Only three sectors (technology, communication services, and consumer discretionary) have posted gains this year, while the other eight sectors have experienced losses. Technology stocks have contributed significantly to the overall market's performance.

Summary & Key Takeaways

  • Nvidia's stock jumped 25% last week amidst concerns of an impending AI bubble, with trading volume reaching 10 times its normal daily market.

  • Past examples of highly valued stocks like Tesla and Amazon have rewarded investors with substantial returns, despite initial concerns of being in bubble territory.

  • The article explores strategies for investors to navigate buying expensive stocks while protecting themselves from potential market downturns.

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