Analyst Calls Out Nvidia's 'Astronomical' Valuation, Sees 42% Downside

NVIDIA Corporation NVDA's stock hit an all-time high of $168.50 in early June and has since cooled down to the $150 per share level. Nevertheless, the stock is still higher by more than 40 percent in 2017, which implies longer-term shareholders are still positive.

But this might not last long if Nvidia drifts back to $90 per share, a level that Romit Shah of Nomura Instinet is calling for. Speaking as a guest on CNBC's "Trading Nation," the analyst said Nvidia's valuation is "astronomical" and thinks a 42 percent decline would be justified.

"This is a semiconductor company that is being valued as a software company which it is not," Shah said. "The best businesses in the space trade at six times revenue and Nvidia is trading at around 12 times and fueling that is I think a lot of hype and hope around artificial intelligence."

Dipping to the $90 per share would essentially erase any gains in 2017 as the stock opened the year north of $100 per share. Citron's Andrew Left also thinks Nvidia's stock could trade back to the $90 per share level.

Instead, Shah prefers investing in high quality names like Broadcom Ltd AVGO or Micron Technology, Inc. MU.

Nvidia was trading around $152 per share in Wednesday's pre-market session.

Related Link:

Despite A Hard Loss, Nvidia Is Still Winning

Tech Sector Set To Lead Stocks Lower Again