Investors who piled onto Nvidia (NVDA) before it posted spectacular revenue and profit growth did well. NVDA stock rose from $600 to a high of $974. Last Friday may mark a peak price for the graphics server chip supplier.
Momentum investors may begin to question the long-term longevity of the AI market. Governments may step in at any time to introduce regulations to slow AI’s rise. It may evaluate the pace of AI’s innovations excludes enough checks and balances of a reliable system. AI runs on a probabilistic algorithm. In return for outputting answers quickly, accuracy is not 100%. This would limit AI’s use cases in sectors that require 99.999% precision.
Nvidia’s rise pulled Advanced Micro Devices (AMD) stock to as high as $227.30. At a forward P/E of 56.84, AMD shares trade at a higher valuation than that of Nvidia. AMD is often behind Nvidia in the desktop PC market. Chances are high that it will fail to take Nvidia’s market share in the AI server market, too.
Intel (INTC), despite looking cheap as it trades in a $30 – $46 range, is at risk of falling. Its forward P/E is 32.2 times, comparable to Nvidia’s forward P/E of 35.59 times.
Semiconductors may consider stocks with better valuations, albeit still trading at a premium. This includes Texas Instruments (TXN), Arista Networks (ANET), and Broadcom (AVGO).