AI chip leader will replicate the "Tesla curve"? Bears have already shouted that it's not too late to sell NVIDIA now

According to the Zhitong Finance and Economics APP, recent market views indicate that the future stock price of NVIDIA (NVDA.US) may follow a similar trajectory to Tesla's stock price, meaning that NVIDIA's stock price may replay the storyline of Tesla's stock price - after reaching its peak, it may take a long time to revisit the high levels, with increasing volatility becoming more common. At the same time, a well-known Wall Street strategist who has been bearish on NVIDIA for a long time warned that the time for investors to sell NVIDIA stocks has come, emphasizing that investors should have sold the stock a month ago, and selling now is not too late. This investment guru emphasized that his view on taking profits from NVIDIA stocks is not so much related to the booming artificial intelligence chip business, but rather attributed to the stock's excessively high valuation.

When asked in an interview about the best time to sell NVIDIA stocks, David Bahnsen, Chief Investment Officer of Bahnsen Group, a top Wall Street investment firm, said: "Perhaps about a month ago was the best time, two months ago was also good. If you choose to sell today or tomorrow, it's not too late."

"Someone will always pay for perfection," Bahnsen added. "By buying overvalued NVIDIA stocks, it means that one day you will rely on another investor being dumber than you."

The AI chip leader's forecast for the next quarter's performance does not imply the huge explosive growth seen in multiple quarters in the past. It is understood that NVIDIA's revenue outlook for the third quarter, announced after the US stock market closed on Wednesday, did not meet the market's highest expectations, and NVIDIA CEO Jensen Huang's detailed shipment plans and customer demand for the Blackwell architecture AI GPU at the performance meeting, led to NVIDIA's stock price plummeting over 6% on Thursday.

In terms of overall performance expectations, NVIDIA expects third-quarter revenue as of October to be around $32.5 billion, indicating a growth of about 80% compared to the same period last year, higher than the analyst's average estimate of $31.7 billion. However, the market's highest expectation for NVIDIA's Q3 revenue reached an astonishing $37.9 billion, which to some extent raised concerns about its explosive growth rate slowing down.

On the positive side, NVIDIA's Q2 revenue and earnings per share were well above expectations, with Q2 revenue increasing by 122% year-on-year, and adjusted (under NON-GAAP guidelines) earnings per share at $0.68, a 152% increase year-on-year, compared to the analyst's expected $0.64. However, in the second quarter, the extent to which NVIDIA's performance metrics exceeded expectations was the smallest in the past 6 quarters.

After announcing quarterly performance and outlook, NVIDIA's stock price fell over 6% after the US stock market closed on Wednesday, and by the end of Thursday's US stock market close, it had dropped over 6%. However, year-to-date, the stock has still risen by nearly 140%, leading the entire US stock market.

As Wall Street strategist Bahnsen issues a warning, the AI chip leader NVIDIA's stock price has achieved an "epic rebound" of up to 1000% from its interim low point in October 2022.

Bahnsen's prediction is based on an important valuation data point, which is NVIDIA's price-to-earnings ratio. NVIDIA's price-to-earnings ratio after announcing its performance is slightly above 56x, previously reaching close to 80x in July.

Undoubtedly, the current valuation of NVIDIA's stock is higher than the vast majority of growth stocks in the U.S. stock market. The premium ratio compared to the Nasdaq 100 Index and the S&P 500 Index is close to the historical peak valuation reached last year. However, NVIDIA's performance growth last year was much stronger than the current actual performance growth and the expected performance growth for the next fiscal quarter. The high valuation last year to a large extent matched NVIDIA's unparalleled performance growth.

Bahnsen's Key Reminder: The company itself and the stock value are not the same

In interviews, this Wall Street strategist repeatedly reminds investors that the great fundamentals of NVIDIA as a company cannot be equated with the company's stock.

"This is not me criticizing NVIDIA itself," Bahnsen explained. "This is a successful business story. I am commenting on its valuation—when you start paying these high prices, the risk/reward skew becomes very unattractive for investment."

Nevertheless, most Wall Street analysts from major banks who give the stock a "buy" rating are willing to take on the risk of high valuation, and none of them have given NVIDIA a "sell" rating, the most negative stock rating.

Analysts from major banks such as Bank of America and Morgan Stanley remain optimistic about NVIDIA's stock price trend, shouting out that it is a good opportunity to "buy on dips." Among them, Bank of America analyst Vivek Arya reiterated his "buy" rating on NVIDIA, calling it the "best industry choice," stating that the decline in NVIDIA's stock price provides a good entry point. He raised NVIDIA's target price from $150 to $165, compared to NVIDIA's close at $117.59 on Thursday.

Considering NVIDIA's second-quarter revenue reaching as high as $30 billion, a 122% increase from the same period last year, and combining with the dynamics of the AI industry showing that U.S. tech giants, as well as global enterprises and government agencies, have shown no signs of cooling in demand for NVIDIA's AI GPUs, some institutions' fervent bullish sentiment towards NVIDIA's stock price seems understandable.

NVIDIA's future to some extent depends on the spending scale of other large tech companies and the prospects for the "monetization of AI" by these companies. According to estimates by institutions, the combined efforts of tech giants Microsoft, Meta, Google's parent company Alphabet, and Amazon contribute over 40% of NVIDIA's revenue scale.

Alphabet CEO Sundar Pichai stated in the latest earnings conference call that the company's spending on artificial intelligence will not slow down. Pichai said, "I think when we go through such a curve, the risk of underinvestment for us is far greater than the risk of overinvestment."

Alphabet's investment in artificial intelligence is crucial to NVIDIA's overall revenue scale, which may be a bullish signal, but according to Bahnsen, these business fundamentals are not the only focus, and NVIDIA's extreme valuation levels cannot be ignored.

Will NVIDIA's future stock price trajectory be similar to Tesla's?

The next big question for investors is whether the bullish sentiment from Wall Street banks on NVIDIA's latest quarterly performance and future GPU demand is enough to offset any bearish aspects in the third quarter or in the short to medium term. After all, the current market has "zero tolerance" for any flaws in NVIDIA's performance, as even a slight blemish could severely impact the stock price. However, for strategists like Bahnsen Group's Chief Investment Officer Bahnsen who have a long-term bearish view on NVIDIA, selling NVIDIA today or tomorrow is not too late, as waiting for the third quarter results may already be too late.

There is a popular market view recently that NVIDIA's future stock price trajectory has already been seen in Tesla. NVIDIA has grown at an astonishing speed, similar to the electric vehicle leader Tesla (TSLA.US). Both claim to be far ahead in an industry undergoing massive transformation, and both companies are facing uncertainties about production issues and how large the market can grow. The larger NVIDIA becomes, the higher the stakes in the stock market.

Furthermore, NVIDIA's pricing is not as aggressive as Tesla's once was. The company led by Musk soared to a trillion-dollar market value at one point due to its groundbreaking technology and overwhelming profitability, leading to Tesla's valuation being once extremely unreasonable. According to LSEG's statistics, when Tesla's market value peaked, the stock's expected P/E ratio was an astonishing 156x. NVIDIA's expected P/E ratio is roughly equivalent to the P/E ratio on the day before ChatGPT made its debut, sparking a frenzy for large AI models, which often heavily rely on NVIDIA's AI GPUs.

Tesla has to some extent fallen from grace. Initial production challenges have snowballed into continuous product delays, intensified competition in the electric vehicle market, and led Musk to cancel his ambitious aggressive growth targets. Tesla's core gross margin (excluding government electric vehicle subsidies) has halved since 2022.

In contrast, NVIDIA's manufacturing disruptions are not as severe: its next-generation AI GPU based on the Blackwell architecture is undergoing capacity and design adjustments, with Jensen Huang still promising analysts and investors that Blackwell will be rapidly rolled out globally in the fourth quarter, but not directly addressing issues related to incremental supply and demand. In an industry known for even worse chaos in recent years, this is considered a relatively mild capacity adjustment NVIDIA, in the process of continuously breaking market boundaries, it is easy to understand the anxiety of investors and analysts. After all, investors have seen similar trajectories in Tesla's stock price. Musk seems to have a clear advantage: investors have given this sole helmsman of Tesla a lot of leeway. He promises to fully lead everything from giant batteries to humanoid robots, to the global shift towards green energy, and regardless of any setbacks, investors often give him honor and trust in advance. His personal ambitions are to some extent linked to Tesla's market value, and his lofty ambitions are also one of the reasons for Tesla's valuation increase.

At the same time, NVIDIA is receiving more attention for its extraordinary achievements in its main businesses such as chips and related software. Jensen Huang has not made grand promises like colonizing Mars and a global green energy revolution. The NVIDIA led by him tends to collaborate with tech giants for mutual development, while Tesla continues to forge new paths on its own. Therefore, NVIDIA's valuation may be more likely to return to reality