Shares in NVIDIA, a computer chip maker, have boomed. They're up 170% this year and have crushed almost every other stock. Investors think artificial intelligence (AI) will change the world and want a slice. They reckon NVIDIA will make the hardware that powers AI, and they've bid hand-over-fist to get in. However, some punters wonder whether the rally is overdone. Has the price risen too high? The answer is yes. Investors have overvalued the company and will get lacklustre returns from here.
First, despite ambitious growth and profitability expectations, the shares are expensive. Fifty analysts cover NVIDIA and expect the top line to grow five-fold in ten years. They also think margins will expand to 55% from their already-juicy 35% level. If they're right, NVIDIA would be the world's fastest-growing billion-dollar-plus public semiconductor company. It would also have the widest profit margins. It's plain to see that analysts are confident about the firm's future.
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