3. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Aswath Damodaran, NYU Stern School of Business professor of finance, recently talked about Nvidia Corp (NASDAQ:NVDA) in a program on CNBC and said:
“Investors are also increasingly focused on the guidance that Nvidia Corp (NASDAQ:NVDA) is offering, and the negative reaction, I think, is coming from the sobering of that guidance. Nvidia Corp (NASDAQ:NVDA), I believe, is trying to bring investors down for a soft landing, lowering expectations. However, it’s going to be painful. Every earnings report, you’re likely to see more of this phenomenon play out—where they beat the numbers but the stock price still goes down.”
Damodaran explained exactly why he believes Nvidia Corp (NASDAQ:NVDA) is overvalued.
“I think at this price, if you’re buying, you’re expecting the product and service market to be much bigger than people anticipate. You need to be clear that this is what you’re basing your purchase on. Even if you assume Nvidia’s dominance in the AI chip market—which I believe they currently have—and their ability to maintain these sky-high margins, you still can’t justify a $144 valuation without something additional happening. It’s almost as if you’re betting on Nvidia finding and dominating another market, and that’s a tough call.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore. The stock fell despite reporting better-than-expected numbers for the latest quarter. However, analysts are sensing a growth slowdown. Nvidia’s Q4 revenue guidance missed the buy-side whisper number of $39 billion, and the company expects gross margins to keep shrinking next quarter. For Q4, non-GAAP gross margin is projected at 73.5%, down from 75% in Q3. NVIDIA Corporation’s (NASDAQ:NVDA) biggest customers, cloud hyperscalers — which account for 50% of its revenue — are increasingly developing in-house AI chips and collaborating with competitors like AMD. This raises concerns about Nvidia’s medium-to-long-term growth in demand and margins.
Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
