The stock market had another bad day on Wednesday. This time, a weak sale of bonds made people feel bad.
Nvidia NVDA 6.13%, which has been a market favorite for the past two years, fell 5%. It’s now more than 20% (23%, to be exact) below its recent high, so it could be called a bear market.
Aswath Damodaran, a finance professor at NYU Stern School of Business who is often called the “dean of valuation,” says that Nvidia’s stock price only makes sense if investors think the company will create and win in a whole new market segment.
“Let me tell you one thing that works in Nvidia’s favor. A radio host named Niels Kaastrup-Larsen asked him about it, and he said, “I call it my opportunistic growth company.” “This business has found new markets and jumped into them before anyone else.” It worked with games. It worked with crypto. “AI made it work,” he said.
“You can call them lucky the first time.” You could say they were really lucky the second time. “There’s something the company is doing this time that’s giving them an edge over their competitors and the big market,” he said.
People can bet on it, but Damodaran said, “It’s not AI that justifies the [peak valuation] of $3 trillion.” A lot of people think that Nvidia will find another big business and be the first to start it.
He compared Nvidia to Cisco, a company that makes network equipment, several times during the 2000 dot-com bubble. “Even if you believe Goldman Sachs that AI is a $3 trillion or $4 trillion business, Nvidia’s architecture for AI can’t be more than $500 billion of that.” “And that’s bigger than any prediction I’ve seen for how high the AI chip business is going,” he said.
It’s possible that his view on value investing in general is more interesting than his study of Nvidia. His words: “I don’t think I’ll cry when value investing as a concept is buried. It’s time to let it go.”
He said that he had never been to an Omaha Berkshire Hathaway shareholder meeting. The way they said they were reading Benjamin Graham and “worshiping at the alter of Warren Buffett and Charlie Munger” were both things he called “righteous” and “ritualistic.”
“”We’re the adults.'” That’s pretty much what value buyers told me. “We’re the adults.” These traders aren’t very smart. “These tech investors aren’t very smart,” Damodaran said. “And the trouble with being good is that you think you should be rewarded for being good.” I wouldn’t put your money there at all.
Damodaran said that he has shares in all seven of the Magnificent Seven companies. God bless him, he didn’t buy them in 2023. “But they were all cheap at some point, and I chose to buy them then,” he said. “Any stock should be fine for you at the right price.”
