The speculative fervor around Nvidia (NASDAQ:NVDA) stock has something in common with a short squeeze. At some point, it ends in tears for someone.
There’s also no doubt that NVDA stock is a bubble stock. We’re talking about 118 times earnings and 25 times sales. This is happening just two years after the last tech bubble burst, built around cryptocurrency and the metaverse, with hardly anything left of value.
Yet still there are analysts recommending you buy NVDA stock now. Why?
A Closer Look at NVDA stock
The boom in “generative AI,” machine learning programs is real. There are going to be huge productivity gains. Some jobs are going to disappear.
Nvidia is as the arms merchant for the cloud data centers that will crunch internet data and generate answers for clients. Nvidia is on the cutting edge of technologies like inverse lithography, that speed this along. Best of all, these are algorithmic changes.
AI and Nvidia
AI is a decade-long trend, so Nvidia can expect steady growth, but Nvidia is basically a software company. It doesn’t make chips.
Taiwan Semiconductor (NYSE:TSM) and, by mid-decade, Intel (NASDAQ:INTC) will limit Nvidia’s growth based on their capacity.
There will also be competition, from Advanced Micro Devices (NASDAQ:AMD), from Intel, and from Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) and Amazon.Com (NASDAQ:AMZN), all now designing their own silicon.
I got into Nvidia stock before the pandemic. I got back my investment after the graphics boom when it split 4:1. I’ve since watched Bitcoin mining boom and bust, and the start of the AI boom, with what looks (to the untrained eye) like free stock.
There just isn’t anyone selling Nvidia right now, except speculators betting on short-term moves. Nvidia’s moves into services only enhance the buying pressure.
Then look at Nvidia’s price chart. The 2022 tech wreck, and disillusionment with Bitcoin, absolutely clobbered the stock, which fell from a high of $329 to a lot of $112.
The shares still haven’t reached their 2021 high. Given the performance of the NASDAQ, and even mighty Microsoft (NASDAQ:MSFT), up just 17% in the last two years while Nvidia has doubled, I’m not expecting that to happen.
The Bottom Line
A long-term investor should always have a list of stocks they want to buy on weakness. Nvidia deserves to be on that list. When the market is soft, accept some losses, raise some cash, and get into something better.
You had your opportunity with Nvidia last year and if you took it you’re in great shape. If you just held on, as I did, you’re a happy bunny. Just remember that next time people underestimate technology and its ability to produce change.
When the current AI bubble pops, that’s when you buy Nvidia.
On the date of publication, Dana Blankenhorn held long positions in TSM, AMD, AAPL, GOOGL, MSFT, AMZN and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. His 10th novel is The Time Tunnel, now available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.