Nvidia is overvalued at this point, says NYU- Stern professor and valuation guru Aswath Damodaran

Aswath Damodaran, valuation guru and Professor at Stern School of Business at New York University, believes that chip giant Nvidia is overvalued at the current prices. Damodaran explained about it in his blog and also spoke about in a podcast with NYU Professor Scott Galloway.

Damodaran wrote in his blog 'Musings on Markets', that as an investor in the chip manufacturer he is in a dilemma whether he should "cash out or let my money ride." He invested in the company in 2018. In his research, he concluded that the company's valuation is currently overpriced.

He wrote, "My valuation story for NVIDIA reflects all of these positive features, and assumes that they will continue into the next decade, but that upbeat narrative still yields a value well below the current price."

The valuation guru explained his logic in an interaction with Professor Galloway. 

He said, "Right now, the AI chip market, it's at 25 billion dollar. I look for estimates of how big that market could be 10 years up. The biggest number I found was 350 billion. I gave Nvidia 100 per cent market share of that market and I still couldn't get up to 400 per share. So, you almost have to price in another market out there as big as the AI market that we haven't seen yet."

As per his blog, the NYU-Stern professor sold half his holdings of Nvidia. "I chose a path that splits the difference, selling half of my holdings and cashing in on my profits, and holding on to the other half, more for the optionality (that the company will find other new markets to enter in the next decade)," he wrote.

The professor noted that historically Nvidia has pivoted towards newer markets, like gaming, crypto, artificial intelligence, etc. That makes him optimistic about the company’s future. That is the reason why he has held on to half of his investments.

“NVIDIA was lucky to catch a growth spurt in the gaming and crypto businesses, a closer look at its successes suggests that it was not luck, but foresight, that put the company in a position to succeed. In fact, as the AI and Auto businesses look poised to grow, NVIDIA's positioning in both indicates that this is a company that is built to be opportunistic,” he concluded.