By August of last year, Nvidia’s stock was substantially overvalued by most metrics. Now? The problem has nearly tripled. Nvidia’s market cap had risen threefold to more than $1.2 trillion since the start of 2023, to notch the biggest short-term valuation jump in the history of capital markets, a rampage that drove its P/E multiple, based on the past four quarters of GAAP earnings, to well over 100.
Back in those early days last August, Fortune’s analysis argued that to deliver its investors decent returns over the next seven years, Nvidia would need to raise its earnings at an annual rate of over 22%, a number that looked virtually impossible, given an inevitable shrinkage in its gigantic margins, and the onset of rivals bent on invading the most lucrative, and fastest-growing market in the tech universe. David Trainer, founder and CEO of research firm New Constructs and arguably the best mind on Wall Street for assessing companies’ worth based on fundamentals, confirmed my view, stating: “Nvidia’s valuation is ridiculous. It’s facing the same curse as Tesla. But when Tesla got profitable, loads of competitors entered the EV space, cutting margins and slowing sales. The same will happen with Nvidia.”
