Wall Street's 'Dean Of Valuation' Still Thinks Nvidia's Market Cap Is Too High But Says This Is A Story 'We Could Find Plausible Paths To Get To $3 Trillion'

Zinger Key Points
  • While an early Nvidia investor, Damodaran sold his holdings in mid-2023 due to the stock's rapid rise.
  • While maintaining his view that Nvidia is overvalued, Damodaran offered a surprising concession.

Wall Street darling Nvidia Corp. NVDA reached a new milestone on Wednesday, exceeding the $3 trillion market capitalization mark for the first time, briefly pushing its valuation past Apple’s. However, the stock’s lofty price has reignited the debate about its true value.

What Happened: New York University Stern School of Business Professor Aswath Damodaran, known as Wall Street’s “Dean of Valuation,” believes Nvidia’s intrinsic value doesn’t justify its current price tag.

Despite this, he acknowledged the company’s achievements in a CNBC interview: “If you are designing the perfect momentum company from scratch, Nvidia would be it.”

“A great story, a CEO who sticks to the story, no distractions, is able to meet expectations of the short term because they have set the game up and you’ve got a market that contributes to the mix,” he said.

“I think that you'll see one of the great momentum plays of all time playing out in front of you,” Damodaran added.

While an early Nvidia investor, Damodaran sold his holdings in mid-2023 due to the stock’s rapid rise. “I cannot in good conscience hold on to it and call myself a value investor,” he stated then. He reiterated this concern earlier in 2024, acknowledging Nvidia’s strength but expressing his belief that the price had become excessive.

Since then, Nvidia’s stock price has risen over 54%, with a current forward price-to-earnings ratio of 47.17.

See Also: Best Artificial Intelligence Stocks

AI Mania: Revisiting his view on Nvidia, Damodaran acknowledged the evolving landscape.

“My basic story is bigger than it was a year ago, partly because of what Nvidia has delivered and partly because of what AI is showing in due in the overall economy and market,” he said. He also pointed to Hewlett-Packard’s recent earnings report as evidence of AI’s influence beyond hardware.

“I think, you're seeing AI percolate … go beyond the architecture part of the business into services, into products, into the rest, the software, and I think you're going to start to see the ripple effect shock in other companies,” he said.

Overvalued, But With Potential Paths: While maintaining his view that Nvidia is overvalued, Damodaran offered a surprising concession. “I would say, based on my story,..$3 trillion is too high a number,” he stated. However, he acknowledged the potential for future growth, saying: “But I think this is a story we could find plausible paths to get to $3 trillion if you add on additional markets.”

“One of the things about momentum companies is there is a plausible path to get to these really high numbers, and when the momentum is in your favor, you'll find those paths.”

Nvidia’s surge has helped propel the tech-heavy Nasdaq Composite and the S&P 500 to new highs. However, tech analyst and venture capitalist Gene Munster has warned that the market might be in the early stages of an AI-powered bull run destined to end in “a spectacular bubble burst.”

Stock Split Coming: Nvidia closed Wednesday’s trading session up 5.16% at $1,224.40, according to Benzinga Pro data. The stock rose another 2.01% in pre-market trading on Thursday.

The company will undergo a 10-for-1 stock split on Friday after the market closes. The new share price will reflect the split when trading resumes on Monday.

Read Next: Nvidia’s AI Muscle Propels Stock Past Apple To No. 2 Spot On SPY Holdings: What Investors Need To Know

Photo via Shutterstock

Market News and Data brought to you by Benzinga APIs
Posted In: Analyst ColorEquitiesNewsTop StoriesTechMediaartificial intelligenceAswath DamodaranExpert IdeasStories That Matter
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!