ARKK - Nvidia Stock: Investing In The Biggest Market Mover Comes With Risks

2024-06-21 12:07:05 ET

Summary

• Nvidia Corporation's strong demand drove significant revenue growth and raised expectations for continuous high growth, but I believe the current stock price is largely driven by sentiment and momentum.
• Despite Nvidia's 423% YoY growth in Data Center and 262% YoY in total revenue in 1Q FY2025, its EV/Sales TTM of 41.5x is approaching all-time highs.
• Market consensus on Nvidia's future growth may be overly optimistic, with potential risks including pull-forward demand, competition, and geopolitical tensions.
• Investors prioritize future growth over past gains. Despite Nvidia's revenue tripling over the past three years, any deviation from its current growth trajectory could trigger a deep selloff.

How Can NVDA Rally So Much?

It's difficult to imagine how much that the sentiment of the entire U.S. market is heavily influenced by one stock, Nvidia Corporation ( NVDA ). I acknowledge that NVDA's growth outlook has surpassed my expectations over the past year. The recent jaw-dropping rally is driven by two factors: tremendous demand for GPU chips for training AI models amid the GenAI boom, and significant expansion in its valuation multiples due to continuous upward revisions in the company's growth outlook. Essentially, NVDA appears to be undervalued if a 100% rally in stock price can be fundamentally justified by a 100% YoY growth in revenue or earnings. It seems undervalued because investors haven't fully considered that the company's future growth could be much stronger than expected, which would justify even higher valuation multiples....

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