Now Nvidia is comparable to Tesla at its peak market value: it's out of control!

Nvidia recently became the first chipmaker to surpass a market capitalization of $1 trillion, but a finance professor who has been investing since 2017 sold his Nvidia stock.

The recent rise in the US stock market has been driven by a few tech giants, which may also be a problem.

Aswath Damodaran, a professor of finance at New York University's Stern School of Business, said, "This lack of breadth in the market is driving me crazy."

He recently studied 80 years of market data and found that bull markets are typically driven by 10% or fewer stocks.

Nvidia is too expensive

Damodaran said on Tuesday, "Until this morning, Nvidia was still in my portfolio."

"But I eventually removed it from my portfolio because Nvidia's market capitalization rose by $300 billion in a week. This is challenging the absolute limit of sustainable value."

But why does he think Nvidia cannot join the trillion-dollar club with Apple, Microsoft, Alphabet, and Amazon?

After all, Nvidia dominates the field of artificial intelligence chips.

He estimates that Nvidia currently holds an 80% share of the $25 billion artificial intelligence chip market, and the most optimistic forecast is that the market will reach $350 billion in 10 years.

Even if Nvidia's future market share reaches 100%, "the stock price of over $400 is still too high."

Nvidia is essentially a hardware company

More broadly, Damodaran said that Nvidia is essentially a hardware company, while other members of the trillion-dollar club use software to attract a large number of end users to their ecosystems.

This creates a long-tail distribution of business opportunities, which benefit from multiple ways of profiting from new products and services.

Damodaran said that a company that sells chips to other businesses faces natural limitations.

He said, "Compared to investing in a consumer-based company with billions of users in its ecosystem, Nvidia's advantage is not great."

He compared his current view of Nvidia with his feelings when Tesla reached a market capitalization of $1.2 trillion in November 2021.

Tesla continued to fall after reaching a historic high and then rebounded at the beginning of this year. In hindsight, their pricing in January was reasonable, but "the situation is a bit out of control now."