Nvidia is too ‘frothy’ and its price will fall from unsustainable heights, analyst says

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  • Nvidia’s stock price is “frothy” and is at unsustainable highs, one analyst said.

  • The stock has a price-to-earnings ratio of 97, far more than all of its trillion-dollar peers.

  • The company’s chipmaker peers like Taiwan Semiconductors haven’t seen the same type of gains.

What goes up must come down — and Nvidia, which has been forging upwards in a seemingly unstoppable rally, has got to come down eventually, one analyst said.

“I think the price that it’s at right now is very, very, very hard to maintain,” Cleo Capital’s Sarah Kunst said in a CNBC interview. While other tech stocks have seen huge gains over the last few weeks, they’re “foamy,” but Nvidia is “frothy,” Kunst agreed with the interviewer.

The stock has a price-to-earnings ratio of 97, which essentially means investors are willing to pay 97 times the price for the reward that could be earned per share. That is far more than all of its trillion-dollar peers, Kunst said.

Nvidia has enjoyed an astronomical boom over the last few months, with a stock price that is up 224.64% in the past year, and a valuation that has relentlessly risen. Its shares have been boosted by the rapidly growing AI industry, which requires chips like those made by Nvidia, to the point that it has become the 3rd largest US company, behind only Microsoft and Apple.

But even if there’s a perfectly logical reason for why the stock is up, it still doesn’t explain the magnitude of Nvidia’s meteoric rise. After all, other semiconductor companies like Taiwan Semiconductors are doing much better on the fundamentals, Kunst said. And across the broader market, stocks are up — but not unsustainably high like Nvidia. The reason why, Kunst said, is optimism.

“The reality is right now that things are up,” she said. “There was so much cash sitting on the sidelines last year waiting for this big crashing downturn — that, knock on all of the wood, we have hopefully avoided. People want to put that cash back in.”

To be fair, the fact that a big name like Nvidia is soaring in a market that is, on balance, rallying, isn’t a bad thing, Kunst added.

“People right now are really looking for innovation,” she said. “We see everything — from the Novo Nordisk’s of the world to the Uber’s — we see them go up right now because that’s what people want to invest in.”

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