Renowned as the “Dean of Valuation”, Aswath Damodaran, who imparts his wisdom to eager scholars at the Stern School of Business at New York University, commands a following of investors seeking his expert analysis on stock valuation. His wealth of knowledge has been disseminated through various publications and his website, earning him this esteemed title. So, when Damodaran appears to be offloading Nvidia stock rapidly, it naturally raises eyebrows.
Image source: Nvidia.
Assessment of the “Seven Samurai”
Damodaran likens Nvidia, along with Google parent Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Tesla, to the “Seven Samurai,” evoking images from Akira Kurosawa’s classic movie, The Seven Samurai. In Damodaran’s view, these stocks have been saviors in a tumultuous market. Notably, the combined market capitalization of these stocks has skyrocketed over the last decade, portraying a remarkable success story that has eclipsed China’s entire public stock market cap.
Nvidia stands out as the star performer among the “Magnificent Seven”, with its stock surging more than 165x in the last 10 years and tripling in value over the past year.
Damodaran’s View on Nvidia
Although impressed by Nvidia’s growth potential, Damodaran considers it the most overvalued among the elite group. His valuation model forecasts a compound annual revenue growth rate of over 32% for the next five years and an exceptional 40% operating margin. Despite these rosy projections, his fair value estimate for Nvidia is 40% below the current share price at $436.
Should Investors Follow Suit?
While Damodaran doesn’t rule out the unpredictability of AI which could potentially drive Nvidia’s future, he cautions about the stock’s lofty valuation. However, heeding his perspective, a decline in Nvidia’s share price could present an opportune moment to enter or amplify a position in this tech titan.
It’s undeniable that Nvidia is priced for perfection. Any hurdles in sustaining its phenomenal growth trajectory could trigger a substantial sell-off. Yet, this might herald a rare buying opportunity for discerning investors.
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