Nvidia stock is a bubble waiting to burst – and the AI rush may be a modern version of 17th-century tulip mania, note says

Investors' AI rush brings to mind the 17th-century tulip bubble, according to Rebellion Research.

Reuters/Cris Toala Olivares

• Nvidia's stock price has become a bubble, according to Rebellion Research.
• Shares could soon crash like 17th-century tulips or 1990s dot-com companies did, the think tank said.
• The semiconductor giant has soared 180% this year, thanks to the rise of generative AI.

Nvidia's stock has soared so high this year that the semiconductor giant now trades at a bubble-level valuation reminiscent of 17th-century tulips and late-1990s dot-com companies, according to Rebellion Research.

Shares have jumped 180% to $410, but the think tank said earlier this month that the stock is now hugely overvalued and could crash at any time.

"Historically, financial markets have witnessed numerous asset bubbles, from the tulip mania in the 17th century to the more recent dot-com bubble in the late 1990s and early 2000s," Rebellion analysts wrote.

"Nvidia's recent stock performance, driven by the enthusiasm surrounding generative AI and soaring earnings, seems to exhibit many characteristics of such speculative bubbles," they added. "We think Nvidia is a great company … however, just maybe at $300 a share."

Generative AI programs like ChatGPT run on high-powered, specialized graphics processing units (GPUs) – and Nvidia has a lion-sized share of that market.

It's posted back-to-back stellar quarterly earnings report that showed demand for its products has surged thanks to the AI craze, and investors have responded by loading up on shares. 

That's pushed Nvidia to a trillion-dollar valuation and establish it as a member of the mega-cap "Magnificent Seven" group of Big Tech firms.

But it remains to be seen how "practical and profitable" AI can be and that makes Nvidia's stock vulnerable at its current price, according to Rebellion.

The company also looks overvalued at its current price-to-earnings ratio and could struggle if the Federal Reserve ends up holding interest rates at a higher level for longer to combat inflation, strategists warned.

"With historical price-to-earnings ratios as a reference and the looming shift in monetary policy, investors should tread with caution," they said. "Like every bubble that has come before, the factors leading to its rise often sow the seeds of its eventual burst."

Rebellion, which uses probability models to generate market predictions, compared the chipmaker's valuation to several high-profile bubbles from the past 400 years.

Those included the Dutch tulip boom of the 1630s – when contract prices for tulip bulbs skyrocketed, creating what's been called the first speculative financial bubble – as well as the more recent dot-com crash, which triggered a massive sell-off in the tech-heavy Nasdaq Composite between March 2000 and October 2002.

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