Despite last week's triple-witching day and bearish factors such as executive shareholding reduction and institutional profit-taking at the end of the quarter, the stock price experienced a significant decline. However, considering the continued AI boom, as one of the "most important stocks on the planet", its fundamentals have not changed. Over the past 5 years, the stock has soared 4000%, tied with Microsoft and Apple as one of the world's highest market cap companies.$NVIDIA (NVDA.US)$Although the stock price fell sharply due to bearish factors such as the triple-witching day last week, executive shareholding reduction and institutional profit-taking at the end of the quarter, the fundamentals of the company, which is considered one of the "most important stocks on the planet" amidst the ongoing AI boom, have not changed. In the past 5 years, the stock has soared 4000%, which is one of the world's highest market cap companies, alongside Microsoft and Apple.

However, whether the excessively high growth rate can be sustained is currently the focus of the market's concern.

Considering Nvidia's high expected growth, it is not more expensive than other tech giants.

The moat built by the CUDA software ecosystem and GPU hardware has made Nvidia the leading player in the AI chip market, occupying approximately 90% of the market share. Over the past five years, Nvidia's revenue CAGR has reached 64%, ranking first among the S&P 500 component stocks.

However, is Nvidia a good investment target? Nir Kaissar, founder of investment management firm Unison Advisors, pointed out in a column published on the 24th that valuation factors need to be considered to answer this question. Companies with high growth and high profits often receive a premium, and Nvidia is no exception. Its P/E ratio is 76 times, more than three times that of the S&P 500 index and twice that of Microsoft and Apple.

Nir Kaissar said that investors may argue that they are looking at Nvidia’s future rather than the past; according to Wall Street analyst estimates, Nvidia's long-term profit growth rate for the next 3-5 years is 43%, much higher than Microsoft and Apple. Based on this growth rate, Nvidia's long-term P/E ratio is about 18 times, which is comparable to Microsoft and Apple.

In other words, considering Nvidia's high expected growth, it is not more expensive than other tech giants.

Overly optimistic expectations are the real risk.

Nir Kaissar wrote that for a new AI company like Nvidia, the uncertainty of future growth expectations is much higher.

Current market data shows that Nvidia's long-term growth rate expectations are three times more volatile than Microsoft's and four times more volatile than Apple's. This means that if future growth expectations are too optimistic compared to actual performance, Nvidia's stock price may face a significant risk of adjustment.

Kaissar gave an example of Cisco in the article. Like Nvidia chips that drive AI today, routers made by Cisco in the 1990s helped to promote the rapid development of the internet, and the craze for internet stocks once made Cisco one of the most valuable companies in the world.

From 1991 to 2000, Cisco's operating profit grew at an annual rate of 71%, and its profit in fiscal year 2000 reached 4.6 billion US dollars, with a P/E ratio of 233 times. However, when the internet bubble burst in 2000, Cisco's fate changed rapidly.

In fiscal 2001, Cisco's operating profit plummeted to only $21 million, and it took two years to recover to the 2000 level. Its P/E ratio also fell to 39 times, and its valuation has since been on a downward trend and has not yet returned to its peak.

Kaissar believes that although this does not mean that Nvidia will inevitably repeat Cisco's fate, it reminds us that overly optimistic expectations are risky in rapidly developing emerging industries. Some analysts have observed that some companies are cutting back on spending on new AI tools, which may be a warning signal.

Editor/Somer