It will proceed in a parabolic manner.There's no better way to explain it than this Nvidia's (NASDAQ:NVDA) Over the past 18 months, the chipmaker's stock has soared more than sevenfold.
These impressive gains have led many investors to question how long Nvidia can maintain this momentum. The answer is, “It won't last that long.” Here are irrefutable reasons why Nvidia's stock price growth will slow dramatically.
It's easy
In 1986, the late economist Herbert Stein said, “If something can't go on forever, it will stop.” This became known as Stein's law. And that is undoubtedly true.
Stein's Law applies to Nvidia. The GPU maker's stock price cannot continue to rise at the pace it has seen over the past year and a half. Why do I make this claim? Simple math.
Nvidia's market capitalization currently exceeds $2.2 trillion. If the stock continues to rise at the same pace it has since the end of 2022, the company will be worth more than $16 trillion by the fourth quarter of next year. This amount is higher than the gross domestic product (GDP) of every country in the world except the United States and China, whose 2023 GDPs were approximately $27 trillion and $17.7 trillion, respectively.
If Nvidia's stock price were somehow able to continue rising at its current rate for another 18 months beyond Q4 2025, the company's market capitalization would reach roughly $117 trillion. This is more than last year's global GDP of $104 trillion.
No matter how bullish someone is about the potential of artificial intelligence (AI), there's no way Nvidia will be larger than the world's GDP within the next three years. That probably won't happen, as stock momentum doesn't last forever. Thank you, Herbert Stein.
Slowdown does not necessarily mean decline
Nvidia's stock price growth will slow dramatically in the not-too-distant future. However, it is important to understand that a slowdown does not necessarily mean a decline.
Indeed, some investors believe that NVIDIA stock is a bubble waiting to burst. And it can happen. Aswath Damodaran, a finance professor at New York University and one of the world's most prominent stock valuation experts, estimates that NVIDIA's market capitalization is already more than double its fair value.
However, it is not certain whether Nvidia's stock price will fall. One particularly bullish Wall Street analyst thinks the stock could rise another 56% over the next 12 months. This is significantly slower growth than what Nvidia has offered recently, but it's still pretty good.
But Nvidia's rosy price target from its only analyst is an outlier.Average price target surveyed by 46 analysts LSEG March stock prices reflect the consensus that they are near the ceiling in the short term.
Cathie Wood is right
Cathie Wood, founder and CEO of Ark Invest, has been a longtime supporter of Nvidia. However, in 2023, she began reducing the fund's holdings in AI stocks. This decision did not end well for Wood, as Nvidia's stock price continued to rise. But even though Wood's timing was off, I think her reasoning was correct.
Ark Invest published a report in August 2023 stating:
While we believe Nvidia will likely continue to be a key enabler and beneficiary of AI breakthroughs, there are many other potential beneficiaries that are not well understood. , which could be sold at a much lower valuation, resulting in significantly higher returns and profits than expected. .
I think that's the correct way to look at it. Nvidia will continue to be a leader in AI for a long time to come. However, investors looking for a multibagger can find other AI stocks with more room to run. Nvidia's parabolic days are over. That is irrefutable.
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Keith Speights has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
One irrefutable reason why Nvidia's stock price growth will slow dramatically was originally published by The Motley Fool.
