If Jensen Huang Is Right About This One Thing, NVIDIA Stock Is a Steal at $200

Nvidia (NASDAQ:NVDA | NVDA Price Prediction) CEO Jensen Huang is a great man to listen to if you’re looking for a preview of what’s to come from the future of the AI revolution. Indeed, it wasn’t all too long ago that Mr. Huang was sounding upbeat about the AI boom at a time when the average investor could not even begin to fathom what AI was. Indeed, the launch of OpenAI’s ChatGPT seemingly changed everything overnight, and as the GPU king, Nvidia hasn’t looked back since.

With Nvidia seemingly trying to get past a checkpoint (or a lengthy consolidation channel) en route back to prior highs, questions linger as to what it’s going to take to get the GPU leader back to its fast-gaining ways. With Mr. Huang saying things like “The whole industry supply chain” and everything being “in short supply because demand is so high.”

It certainly feels like Nvidia shares look like a bit of a gift at around $200 per share, especially if the scenario that Mr. Huang sees lasts for a couple of years. Indeed, he sees the supply-demand imbalance as “going to persist for several years.” In my view, it’s hard to argue against the man, especially given his stunningly accurate track record of calls over the years.

There’s risk in Nvidia stock, but is it overpriced to the point that Nvidia actually offers a good risk/reward?

At this juncture, there certainly seems to be a bit of a value disconnect. How could a company with ridiculous growth and margins be going for a middle-of-the-pack (the pack being the Magnificent Seven) kind of multiple of 31.3 times trailing price-to-earnings (P/E)? Indeed, you could pay a far higher price for a company with a growth rate that’s south of 10%.

While it’s unreasonable to think that Nvidia’s 70%+ sales growth and gross margins will last forever (in fact, these metrics could nosedive once the cycle turns, which is probably why so many have paused with Nvidia stock), perhaps investors should actually consider the most dangerous words of “things are different this time,” even though it’s gotten many into a steaming heap of trouble in past revolutionary booms, the most recent being during the dot-com bust.

Perhaps the inverse phrase, that “things won’t be any different from last time,” is just as much of a problem for those who are so convinced there’s a bubble in AI to bet against names like Nvidia (think Dr. Michael Burry of The Big Short fame, who holds bearish put options against the company).

Of course, the problem during the dot-com days was that the revolutionary technology made it okay to forget about valuation.

Nvidia stock’s valuation is arguably too reasonable

With Nvidia stock, the valuation makes a lot of sense. And it may be treated as a value trap, likely because shares have had a solid six-year chart.

Any way you look at it, though, investors must ask themselves if the risk of a cyclical implosion in AI demand exceeds the reward to be had if Jensen Huang is correct and AI demand will still outpace (perhaps heavily) supply for many years to come. The timing will always be hard to get. Not even the great Mr. Huang will get the timing of the AI market with surgical precision.

But the big question is whether or not investors view the GPU titan as a value trap or not. It looks cheap because it’s either nearing a peak in the cycle (cyclical stocks tend to appear cheapest when they’re not actually) or because it’s actually cheap. That’s the big debate right now. And if you believe Jensen Huang and the pace of CapEx we’ve witnessed this year, perhaps the move is to be a net buyer of the shares.

The bottom line

I’ve said it before, and I’ll say it again: either Nvidia stock is wildly undervalued or it’s severely overvalued, depending on what AI demand does next. Either way, the market might be underestimating the magnitude of what’s to come.

In my humble opinion, it’s things like Claude Mythos that lead me to believe the former is likelier than the latter, as big firms throw money to alleviate chokepoints in this AI revolution. Mythos is generating serious, unfathomable value in the cybersecurity scene. And the big question is whether there will be more Mythos to come as everyone else gets a taste of Claude Fable.