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Home > Analysis > Ark Invest’s Cathie Wood Calls Nvidia Valuations Stretched, Justifies Exit

Ark Invest’s Cathie Wood Calls Nvidia Valuations Stretched, Justifies Exit

Cathie Wood stated that NVDA stock is priced ahead of the curve and trading at 25X expected revenue for this year.

Ark Invest‘s Cathie Wood, known for taking bold bets on new-age tech companies, has justified their exit from Nvidia (NASDAQ: NVDA) earlier this year. Last Wednesday, May 24, NVDA stock jumped by more than 20% in a single day moving closer to the $400 level. In her tweets on Monday, May 29, the ARK Innovation ETF (ticker ARKK) manager justified the exit from the stock. Wood added that the world’s most valuable chipmaker has been priced “ahead of the curve”.

Earlier this year in January 2023, the ARKK fund exited from Nvidia, after which, the stock has more than doubled and is close to hitting a $1 trillion valuation. However, Wood noted that NVDA stock is trading 25 times the estimated sales for the current financial year as investor enthusiasm spikes over Nvidia’s push in the AI industry. In comparison, this is six times its peers on the Philadelphia Semiconductor Index as well as 12 times that of Microsoft Corp.

However, we see, 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 isn’t quite picking up yet amid the tepid demand for consumer electronics.

“Recent results at Nvidia have heightened expectations for AI servers,” SMBC Nikko Securities Inc analysts including Takeru Hanaya wrote in a note. Still, there is a “contrast between AI expectations and overall market weakness,” demonstrated by inventory adjustments and ongoing price cuts in the chip industry.

Nvidia’s Push in the AI Space

Jensen Huang, who co-founded Nvidia in 1993 is still running the company. Over the years, Nvidia has made a name for itself for being the leading chip manufacturer while catering to different industrial requirements of gaming, cloud computing, etc.

At the Computex trade show on Monday, May 29, Huang unveiled a number of AI products across new robotics design, gaming capabilities, advertising services, and networking technology. Furthermore, Huang also unveiled Nvidia’s AI supercomputer platform called DGX GH200 which will help tech companies to create successors to the popular platform ChatGPT. In a note to investors, independent analyst William Keating wrote:

“We basically feel that Nvidia’s stock is in bubble territory, regardless of the future potential growth. In other words, we think the train has left the station and we see little point in chasing it down the tunnel at this stage.”

Based on how much cash Nvidia generates, the company is far more expensive than its peers. Nvidia’s cash flow valuation is over 140 times, surpassing its peers Advanced Micro Devices Inc. and Monolithic Power Systems Inc., which have cash flow valuations less than half of Nvidia’s.

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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.