Nvidia stock is grossly overvalued: market cap to hit $1 trillion anyway

Nvidia (NASDAQ: NVDA) stock price is approaching its all-time high as investors wait for the upcoming earnings. The stock was trading at $306, its highest level since December 2021. It has jumped by more than 180% from the lowest level in 2022. 

Nvidia earnings preview

The biggest semiconductor news this week was the decision by China to block products made by Micron, as we wrote here. The other important news will be Nvidia’s results, which will come after the market closes on Wednesday.

These will be significant results because they come at a time when the company is doing well. Its stock has pumped by 180% from its 2022 low while its market cap has soared to over $771 billion. This means that the shares need to just by about 30% to $397 to hit a market value of $1 trillion.

Some analysts believe that Nvidia is grossly overvalued considering that its total revenue in 2022 came in at $26.9 billion while its net income was just $4.3 billion. The latest estimate, as shown below, are that the company’s revenue will be $30.1 billion this year and $100 billion in 2032. The company is trading at a forward 2032 PS multiple of 7x.

Nvidia revenue forecast

This gross overvaluation is because the company is based on three main reasons. First, Nvidia has a  strong market share in the GPU industry that is expected to keep growing. Second, there are signs that the PC industry is recovering. In a statement on Wednesday, Lenovo said that the industry will recover fully in 2024.

Finally, Nvidia has a stake in some of the fastest-growing industries like artificial intelligence, automobile, and gaming.

For the upcoming earnings, analysts believe that the company’s revenue will hit $6.52 billion, a $500 million increase from the previous quarter. The company’s revenue was over $8.2 billion in the same quarter in 2022. Therefore, we have a $771 billion company whose revenue is not growing as fast.

Nvidia stock price forecast

Nvidia stock technical chart

Nvidia has some of the worst valuation metrics in Wall Street. Turning to the daily chart, we see that the stock has been in a bullish trend in the past few months. Most recently, the shares managed to move above the key resistance level at $290, the highest level in March last year. 

The shares are being supported by trend indicators like moving averages and the ichimoku kinko hyo. Therefore, I suspect that the shares will continue rising in the coming days as buyers target the crucial resistance at $348.27. A move above that will see it soar to the next resistance level at $397, where the company’s valuation will hit $1 trillion.

Watch here: https://www.youtube.com/embed/BkZZPtqtjLI?feature=oembed

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