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Nvidia Looks Overvalued Today

Summary

Nvidia’s stock growth has been stellar with steady 130% gains over three years.

Nvidia has continued to grow its GPU market share and sales, which defies the industry’s declining trends.

The stock’s accelerated growth (130% in three years, 45% in three months, 20% in three weeks) looks unsustainable in the face of industry trends and competitor challenges.

Introduction

There's little wonder why Nvidia (NASDAQ:NVDA) has continued to climb to its recent highs. It has grown market share, leapt forward in ARM (NASDAQ:ARMH) computing, maintained impressive margins, and is expanding into servers and virtual reality, two areas of high growth. As a result, and as of writing, Nvidia stock has grown substantially. This growth, being a double in just over two years may be much deserved, but the recent acceleration of the stock's new 52-week highs seems unsustainable.

The GPU market that makes up more than 80% of Nvidia's revenue has been in decline and the chipmaker's optimism raises questions, as it believes that the market can reach $20B, or more than quadruple its annual sales, even though Nvidia commands more than 80% of this declining market. Nvidia may have been able to defy industry trends, but only at the expense of AMD (NASDAQ:AMD), which has recently improved their product lineup to the point of replacing Nvidia entirely in all of Apple's (NASDAQ:AAPL) Macs.

I'm not implying that Nvidia can't be recognized as a great long-term investment, because the importance of graphics is growing, and Nvidia is in a position to capitalize. However, due to reasons I discuss in this article, I believe that Nvidia's recent valuation may be too-soon, too-optimistic.

Nvidia's...


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