Is Nvidia stock now becoming a laughing stock?

Nvidia (NASDAQ: NVDA) stock continues to rise and reach stratospheric levels. Recently, the company briefly surpassed Microsoft to become the most valuable company in the world.

It's now a $3.1 trillion behemoth, but analysts at Evercore ISI estimate that NVIDIA's market cap could one day reach $7 trillion, making up 15% of the S&P 500. Another broker predicts it could reach $10 trillion by 2030.

Has Wall Street become a stupid town, and is Nvidia stock now just a joke?

Cisco's response?

We're in the middle of a generative artificial intelligence (AI) gold rush, and Nvidia, whose graphic processing units (GPUs) power most of today's AI applications, is truly unstoppable.

But Tesla also seemed unstoppable over the past few years. Today, the electric vehicle (EV) pioneer is not looking as strong, with the company predicting a big sales decline in 2024. The EV megatrend has hit a major slowdown, and Tesla's stock price is down 55% from its peak.

AI is undoubtedly another megatrend. In fact, it could be said to be the biggest technological revolution since the Internet.

Speaking of which, Cisco Systems (NASDAQ: CSCO ) was an Nvidia-esque winner in the late 1990s.

The company's networking equipment powers much of the Internet, and its revenue soared from $1.2 billion in 1994 to $18.9 billion in 2000. Not surprisingly, Cisco's stock price soared as well, making it the most valuable company in the world.

Then the dot-com bubble burst, the company's stock price fell by more than 85%, and it took the company 20 years to recover on a total return basis, even as it continued to grow revenue.

evaluation

In 2000, Cisco's stock was trading at a staggering 39 times sales. Nvidia today? 39 times!

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Meanwhile, Nvidia is growing at a much faster pace than Cisco did during its internet-driven peak: The company reported revenue of $26 billion in the first quarter of fiscal year 2025 and expects to post another $28 billion in the second quarter, just two quarters above the revenue Cisco expects to record for the entire fiscal year ($53.7 billion).

Meanwhile, Nvidia's first-quarter net income of $15.2 billion beat Cisco's full-year consensus estimate (also $15.2 billion), and the company's net profit margin is now over 50%, compared to Cisco's 15% at the time.

The story continues

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Moreover, the “Magnificent Seven” group of AI-powered stocks — Apple, Microsoft, Google-parent Alphabet, Amazon, Tesla, Meta Platforms, and Nvidia — aren't going to go bust like Pets.com and countless other startups did back then.

So, for me, comparing the current AI revolution to the dot-com bubble, or comparing Nvidia to Cisco, is completely unjustified.

$2 trillion in 12 months

Still, I've thought about how it took over 100 years for a company to reach a trillion-dollar valuation, and how Nvidia went from $1 trillion to $3 trillion in just 12 months, with some dedicated analysts now talking $7 trillion-plus and gobbling it down.

While I wouldn't call Nvidia's stock a joke, there are concerns that its valuation is simply unsustainable. Remember, very few companies are currently making money on generative AI applications. They're being given away for free.

As a result, we expect there to be more value destruction than value creation when it comes to generative AI, especially for subscription-based apps. As competition increases and demand weakens, Nvidia's pricing power may decline.

If I still owned the stock, I'd consider taking profits while the going is good.

The article Is Nvidia Shares Now Becoming a Joke? first appeared on The Motley Fool UK.

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Suzanne Frey, an Alphabet executive, is a member of The Motley Fools' board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fools' board of directors. Randi Zuckerberg, former market development director and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ben McPoland owns shares in Alphabet and Tesla. The Motley Fool UK recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Views of companies mentioned in this article are those of the author and may differ from official recommendations made by subscription services such as Share Advisor, Hidden Winners or Pro. At The Motley Fool, we believe considering diverse insights makes us better investors.

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