Is Nvidia Stock Too Cheap?
GERMANY - 2025/04/06: In this photo illustration, Nvidia Corporation logo is seen displayed on a ... More monitor. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
Question: Why would an investor pay 30 times earnings for Amazon stock (NASDAQ: AMZN) when Nvidia stock is trading at 33 times earnings? It wouldn't make much sense, especially when considering these three key points:
Some might consider Nvidia a 'safe haven,' but its track record during market downturns tells a different story. For example, Nvidia stock dropped more than 65% during the 2022 inflation crisis. In 2020, amid pandemic uncertainty, the stock fell over 35%. Most significantly, during the 2008–2009 financial meltdown, Nvidia shares plummeted by 85%. Clearly, NVDA isn't a safe stock. For more detail, see our dashboard How Low Can NVIDIA Stock Go In A Market Crash? along with analysis of previous market crashes.
That said, Nvidia's stock has already seen a considerable correction, falling from nearly $150 at the start of the year to below $100. For investors looking for a potentially steadier, high-performing approach, the Trefis High Quality portfoliomay be worth considering. This strategy has delivered over 75% returns since inception, as shown in its HQ performance metrics.
If you believe in the continued rise and expansion of Artificial Intelligence, Nvidia could be an attractive long-term play at current valuation levels. Nvidia essentially serves as an 'arms supplier' in the AI arena. Investing in Nvidia is not a bet on any one player like OpenAI, Google, or Amazon, but rather on the backbone that supports them all. The AI race is still developing, and companies are pouring in resources. For example, Google's infrastructure-related capital expenditure is approximately $75 billion, showing the scale of the investment.
Despite the optimism, Nvidia does face risks. Earnings could fall short of expectations, or growth might slow from 50% to around 30% as businesses tighten spending. Additionally, clients might pursue more efficient AI models, lessening the need for Nvidia's chips. Unpredictable events could also negatively impact the stock. These factors suggest that downside risk—as much as 40%—is possible. Selling during such dips could hurt investors more than holding through volatility.
Nonetheless, for long-term investors with a 3-5 year outlook who can tolerate swings, Nvidia at today's levels may be a compelling entry into the AI revolution. Those interested in navigating downturns or potentially gaining from them might look into the Trefis Reinforced Value Portfolio, which has beaten its all-cap benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 indices). Consulting with a financial advisor experienced in bear markets may also be wise. Remember, many fortunes are built by those who stay calm and strategic in volatile markets.
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Activist and eating disorder survivor Sharon Maxwell put Tessa on blast after testing it herself. She told the bot she was struggling with an eating disorder, and it replied with advice like: "Weight loss occurs when you consume fewer calories than you burn." Maxwell, understandably horrified, said: "This robot is so dangerous. It gave me advice that almost killed me at one point." She documented the experience and posted it to Instagram, where it quickly went response? They suspended Tessa and said the issue was the fault of Cass, a mental health chatbot company that operated Tessa as a free service. According to NEDA CEO Liz Thompson, Cass had made a systems upgrade to Tessa (without NEDA's awareness or approval) that allowed the chatbot to use generative AI, which led to it giving answers Tessa's creators never intended. When asked about this by NPR, Cass CEO Michiel Rauws said the changes were part of NEDA's contract. 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The exchange was especially embarrassing considering DPD had just rolled out the chatbot with the usual corporate fanfare about 'enhancing the customer experience.'DPD moved quickly to disable the bot, telling The Guardian, 'We have operated an AI element within the chat successfully for a number of years. An error occurred after a system update yesterday. The AI element was immediately disabled and is currently being updated.' And I'll leave you with one final story that will likely stay with you long after you click out of this article. Researchers at the University of Pennsylvania did an experiment to see if they could hack a self-driving car, a wheeled robot, and a four-legged "dog" robot and make them do things they really, REALLY should not be able succeeded. They tricked the self-driving car into driving off a bridge, got the wheeled robot to locate the best location to detonate a bomb, and convinced the "dog" to enter a restricted area. How'd they do it? 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