Nvidia’s Valuation May Be Frothy

Shares of Nvidia (NVDA) have been on a tear recently, spurred on by this year’s artificial intelligence (AI) frenzy.  Nvidia, a key supplier of computer chips needed to power chatbots and other AI applications, has more than doubled in price since falling to a 2-year low in October.  However, the stock’s surge has taken its valuation to potentially frothy levels, suggesting further upside may be hard to sustain.

According to Bloomberg data, Nvidia currently trades at 56 times projected earnings, nearly three times more expensive than the Philadelphia Stock Exchange Semiconductor Index’s ($SOX) 21 times and about a 150% premium to the Nasdaq 100 Stock Index ($IUXX) (QQQ).  Nvidia’s average multiple over the past ten years has been 30 times projected earnings.