The Nvidia Corporation (NASDAQ: NVDA) share price has continued to balloon in 2023. Nvidia shares closed at US$462.41 each last night, down 1.74%. However, the semiconductor giant remains up a whopping 223.02% from the US$143.15 share price it started 2023 at.
Today, this puts Nvidia's market capitalisation at an eye-watering US$1.14 trillion.
Given the sheer scale of Nvidia's share price gains this year, some investors are now calling the stock a bubble. Bubbles have to pop at some point, so this might be a scary concept for current Nvidia shareholders to process. So, let's take a look at whether this bubble speculation is justified or not.
Is the Nvidia share price in a bubble after rising 223% this year?
One investor thinks so. Tech investor Rob Arnott, along with Chris Brightman and Thomas Verghese, wrote a piece on Nvidia stock for Research Affiliates last month.
Arnott wrote that, "because Nvidia has emerged as the cornerstone company designing chips for the AI revolution, investors are understandably euphoric about the prospects for its stock price".
However, he also issued the following warning to investors expecting the party to continue:
Nvidia's price reflects a certitude that its CPU architecture will continue to dominate, that it will not be displaced by new entrants or internal projects at other AI firms, and that current market expectations aren't excessively optimistic…
Today… Nvidia's P/E [price-to-earnings ratio] sits at 110, half of Cisco and Qualcomm at their 1999-2000 peaks. Even so, we believe that—like Cisco and Qualcomm during the dot-com bubble—Nvidia is a company with terrific long-term business prospects and its stock price may be a bubble…
Overconfident markets paradoxically transform brilliant future business prospects into even more brilliant current stock price levels. Nvidia is today's exemplar of that genre: a great company priced beyond perfection.
Is Nvidia's business model losing its edge?
One of our Foolish colleagues over in the US recently pointed out some perceived flaws with Nvidia's business model as well. Here's some of what Timothy Green had to say:
For much of the pandemic, prices were inflated, and Nvidia was selling every graphics card that could be made. That's not the case anymore.
In the near term, the gaming market barely matters to Nvidia because the company's data center segment is booming, thanks to AI-related demand. In Nvidia's most recent quarter, data center revenue was more than 4x gaming revenue. But in the long run, as the AI market matures and competition comes to the AI accelerator market, any erosion of Nvidia's pricing power in the gaming graphics card business could pose a serious problem.
Combining these two theses doesn't exactly present a very positive conclusion. It's hard to argue that the current Nvidia stock price isn't assuming a lot continues to go right for the company. And if what Green argues does have traction, the company could see the sky-high growth rates it's recently enjoyed come back to earth.
However, not all sentiment is negative on the Nvidia share price.
Conservative ASX company buys Nvidia stock
The Australian Foundation Investment Co Ltd (ASX: AFI), an ASX listed investment company (LIC) known for its conservative approach to portfolio management, recently revealed it has taken up a position in Nvidia stock.
In its August annual report, AFIC declared a new portfolio position in Nvidia. As of 30 June 2023, AFIC held 2,555 Nvidia shares worth approximately $1.62 million at the time. Although that is a small portion of AFIC's international share portfolio, and an even smaller portion of its overall portfolio, it's arguably still a vote of confidence in the company as an investment.
Perhaps, unfortunately for AFIC, it is also a new investment, with the company not owning the shares as of 30 June 2022.
So there's a lot going on with the Nvidia share price right now, and a few differing opinions to consider for investors today.
Only time will tell if Nvidia stock is indeed in a bubble right now. But what we can say with certainty is that Nvidia is one of the most exciting companies in the world, and looks set to continue to be one of the biggest players in the global semiconductor market going forward.
