Aswath Damodoran Leaves Entire CNBC Panel SPEECHLESS
Summary
TLDRIn a video discussion, respected analyst Aswath Damodaran asserts that AI stock Nvidia is overvalued, though still a good trade in the near term. His broader view is that the entire stock market is overvaluing the AI sector, resulting in unsustainably high valuations unsupported by reasonable financial modeling assumptions. The host Tom Nash clarifies that Damodaran is not predicting an AI bubble crash, rather a likely market correction before continued growth. Nash advises long-term investors to dollar cost average into AI leaders like Nvidia on dips to build a low cost basis over time, for those who believe AI is the future.
Takeaways
- 😊 Aswath Damodaran believes the entire stock market is overvaluing AI and leading to exuberant valuations.
- 😮 Nvidia is celebrated as having the greatest CEO ever, but its current pricing implies massive future growth that may be implausible.
- 🤔 Nvidia is a great trade in the near-term, but not a good long-term investment at its current valuation.
- 😲 To justify its valuation, Nvidia needs to add $400 billion in revenues to what it currently makes.
- 📈 Nvidia will likely beat earnings expectations in the short term due to current momentum.
- 😐 Buying Nvidia now means assuming total success and perfection going forward, leaving no room for error.
- 😅 Aswath isn't bashing Nvidia or claiming an AI bubble, just expects a correction because markets move in cycles.
- ⏰ The right way to own Nvidia long-term is dollar cost averaging over time through ups and downs.
- 💡 If you believe Nvidia will dominate AI hardware in the future, average into a position rather than trying to time entry and exit points.
- 📚 For learning investing basics like analyzing financials and valuation, check out patreon.com/Nash.
Q & A
What is the main point Aswath Damodaran is trying to make about Nvidia?
-He is not necessarily just saying Nvidia specifically is overvalued, but rather using it as an example to show that the entire stock market is overvaluing artificial intelligence companies in general right now.
What does Aswath mean when he says Nvidia is a good trade but not a good investment?
-He means it will likely continue going up in the near future so could make for good trades, but long-term it is priced for too much perfection so may not be the best investment.
What kind of annual revenue growth is Nvidia priced to achieve over the next 5 years?
-It is priced for about 60% revenue growth per year over the next 5 years, which Aswath sees as very ambitious.
Does Aswath think artificial intelligence and Nvidia specifically are overhyped?
-No, he clearly states that AI is real and will make a difference to business, and Nvidia is well positioned in that market, but expectations are too high.
What does Tom think is the right way to invest in high flying stocks like Nvidia?
-Dollar cost average - buy more when the stock drops while fundamentals remain strong, and buy less when it climbs rapidly. This helps build a cost basis closer to the bottom without timing the market.
What kind of correction does Aswath expect for Nvidia and the overall market?
-He doesn't give specific predictions, but in general expects some kind of meaningful correction driven by high valuations and investor sentiment shifting.
Why does buying high priced, high expectation stocks leave little room for error?
-When a stock is priced for perfection, any minor screw-ups or disappointments can lead to major valuation drops, whereas there is little upside left.
Does Aswath recommend selling Nvidia stock right now?
-No, he is not outright recommending to sell, though he is pointing out the precarious risk/reward situation of buying at current elevated valuations.
What are some of Nvidia's valuation and growth metrics that Aswath sees as stretched?
-He points out it needs to add $400 billion in revenues to justify its market cap. Also priced for 60% revenue growth annually for 5 years, which he sees as ambitious.
Why does Tom recommend dollar cost averaging into stocks rather than market timing?
-Market timing is very difficult, whereas dollar cost averaging ensures you buy at both highs and lows automatically without needing to predict changes.
Outlines
😊 Tom Nash introduces valuation expert Aswath Damodaran's view that Nvidia is overvalued
Tom Nash summarizes a video clip by valuation expert Aswath Damodaran, who believes Nvidia is significantly overvalued right now. Damodaran thinks the entire stock market is overly excited about AI potential and is pricing stocks like Nvidia at unsustainable levels. However, Tom notes that Damodaran is nuanced - he isn't calling Nvidia a bad investment, just that its current valuation prices in perfection, leaving little room for error.
😃 Tom explains how to play the long game with Nvidia despite potential overvaluation
Tom explains the right strategy is to dollar cost average into Nvidia over time if you believe in its long-term potential. This avoids timing the market. Regularly buy more shares when the stock drops, less when it climbs. This way you get a good cost basis even if the current price is high. Tom notes this strategy is boring but necessary for investing in high growth stocks over the long-term.
Mindmap
Keywords
💡Overvalued
💡AI stocks
💡Pricing statements
💡Revenue growth
💡Earnings beats
💡Priced to perfection
💡Market correction
💡Dollar cost average
💡Fundamentals
💡Risk management
Highlights
Aswath Damodaran believes the entire stock market is overvaluing artificial intelligence, leading to exuberant valuations
Damodaran thinks Nvidia is a great trade in the near term, but not a very good long-term investment at current prices
To justify its valuation, Nvidia has to add $400 billion in revenues to what it currently generates
Nvidia is likely to continue beating earnings expectations in the short term since all engines are firing at full force
When you price companies to perfection, it's very hard to make money even if everything goes to plan
Damodaran isn't saying Nvidia will crash or that AI is a bubble about to burst
He's saying a correction for Nvidia and the overall market is due since no company goes up at a 45 degree angle forever
If you believe Nvidia will be the hardware base for AI in the future, dollar cost average to build a position over time
Buy more Nvidia on down days and bad news, unless the fundamentals change
This system requires discipline to steadily accumulate shares, but gets your cost basis lower without timing the market
Join Tom's free Discord community with 8,000 members to discuss investing
Get a free week trial of his Stock MVP platform to analyze stocks with DCF models and insider activity
Consider joining his Academy on Patreon to learn investing step-by-step from A to Z
Topics covered include financial statement analysis, modeling, company evaluation, and more
Have a great weekend and see you on Monday!
Transcripts
hey this is Tom Nash and aswa the motor
and one of the great one of the guys who
onon the mon Rushmore of company
valuations just came out with massive
bombshell that left everyone speechless
check it out but that said though I mean
even a month ago I said only one of the
stocks look significantly overvalued
which Invidia and it's actually the
stock that's gone up the most so that
can be taken as an indication that I
either have no idea what I'm talking
about the Market's doing things that I
just don't understand so in this clip he
talks about Nvidia and how he thinks in
Nvidia is overvalued but I think the
point he's making here is not so much
about Nvidia but the entire market and
how that market right now is pricing AI
in exuberant levels I don't think I've
ever seen a company celebrated as much
as inia Jensen Wong is the greatest CEO
ever walked the face of the Earth and
this company cannot be stopped at least
that's a perception the problem wooden
momentum is everything at some point in
time the fever breaks in this clip his
point is very simple Nvidia is
overvalued but that point is actually
just a way to communicate the greater
message which is yes I'm talking about
Nvidia being overvalued but the entire
stock market right now in my opinion
it's aswa in this clip the entire stock
market is completely overvaluing
artificial intelligence and that leads
to exuberant valuations that don't match
any sort of modeling Financial modeling
that we are aware of that we have ever
applied now he got confronted by the
CNBC interviewer who showed him a clip
by Stacy rasgon who's one of the
greatest as aswath basically saying the
opposite check it out Nvidia is still
not expensive it's actually still the
cheapest of all of the AI stocks it's
way cheaper than AMD it's cheaper than
Marvel it's even cheaper than Intel at
this at this point right so I still
think there is room for expectations to
continue to go up I think so now even
though you don't see Stacy rasan on TV
every single day but he's definitely
very well respected he's one of the best
in the business he basically says look
this is the cheapest AI artificial
intelligence stock to be buying right
now and the way asth responded to this
clip was actually very interesting when
you make pricing statements against a
subgroup stocks in this case AI stocks
and say it's the cheapest of the AI
stocks that might very well be true but
they might all be overvalued I think at
the moment the the fact that I think we
have to accept as AI is real it's going
to make a real difference to business
and I think Invidia is in the front seat
of that market that said though that
pathway is not as easy and as and as um
as open to profits as the market seems
to be assuming it is I mean right now
Nidia is in a strange place you ask me
it's it's a great trade but not a very
good investment the question to to ask
now if you're an investor is if I get in
now what am I pricing it I mean if you
back out from the pricing the $2
trillion market cap what inia has to do
break even it's got to add about $400
billion in revenues it's got to add 400
billion revenues to what it has as
revenues right now that's a daunting
task it's plausible but if investing is
about the game of the probable and you
play the plausible game you're setting
yourself up to lose near term they will
beat their revenue and earnings targets
because there know all engines are are
are firing at at at full force right now
so I wouldn't be surprised upon the next
earnings report they took their earnings
expectations and beat them again which
is what pricing is all about that's why
I said it's a good trade is in the near
term they're more likely to deliver
upside surprises but in the long term
when you price the company to be the
best company ever what is the upset and
before everybody goes off and sells
their Nidia stock hang on a second you
have to understand that asth is a very
Nuance guy here's the point he's making
here he's not saying that Nvidia is
going to crash he's not saying that the
AI is a bubble it's a DOT and all that
stuff that's not what he's saying he's
saying look right now Nvidia is priced
to Perfection it is priced to have the
best CEO of all time Jensen wing it is
priced to be the best company of all
time for the next 10 years and it is
priced for massive growth for about 60%
of Revenue growth for a year for the
next 5 years consecutively and while it
is quite posible that that's going to
hold up for
2025 what the hell do we know about 2027
2028 what he's saying is a few things
here number one when he says Nidia is
overvalued what he's meaning is that
we're going to see some corrections on
the way up he doesn't think that Nvidia
is a Bad Company he doesn't think that
it's vaporware it doesn't think it's
hype he's just telling you hey a
correction is due no company goes up in
a 45 degree angle that doesn't happen
number two he also talks about the fact
that when you price companies to
Perfection it's very hard to make money
while you still make money on Nvidia if
everything goes according to plan and
their perfection actually pans out you
don't make as much money as choosing
companies a little bit earlier on the
hype cycle on the sentiment cycle it's
the same thing with penter when piler
was priced at $7 and at $15 it's not the
same quality of deal as buying it right
now at $25 it's just math and what he's
saying hey if you're getting into Nvidia
right now make sure you understand
you're buying total success total
Perfection and that's a very hard thing
to predict he's basically saying look if
you're buying Nidia right now go right
ahead it's a great company but you have
no room for any screw-ups no room for
risk if anything goes south that
valuation will not hold up it's not the
same thing as buying nid 300 400 buying
it right now at 800 900 and that's a
valid point and I'm sure that despite my
video most people will misunderstand
what he's saying here he's not bashing
Nvidia and he's not saying there's an AI
bubble that's about to crash he's saying
that Nvidia will have a correction the
overall Market will have a correction
because that's how stock markets work
there's always a bull market a
correction and a continuation of bull
market that's just the way things are
the one thing he didn't say in this
video which I wish he had is how to play
this as a the long-term investor the
question is okay if that's the case how
the hell do we play this if we sell now
if we wait the stock might go way higher
before it corrects again we might not be
able to get back in before a th000 etc
etc all these timing the market
questions that people always have and I
keep telling you hey that's the wrong
approach the only way to invest in a
company like Nvidia if you have decided
that Nvidia is the company of the future
is the sort of business you want to own
in 2033 they're going to be the hardware
base of AI everywhere
if that's the case there's only one way
to buy Nvidia and hold Nvidia which is
dollar cost average opposite when the
stock is going up slowly buy more every
time except the fact that you're buying
at the top but when the stock drops on
bad days bad macro days bad inflation
days bad sentiment when bad news come
out either macro or specifically about
the company and they don't change the
overall assumptions you have about the
basic fundamentals of the business you
buy more you buy more when the stock
drops you buy less when the stock climbs
but you buy at all times and in that
case if Nidia Remains the hardware base
of the entire AI industry if in 2033
they're one of the greatest companies in
the world then you have a cost base in
this company in five 6 7 8 9 10 years
that is way closer to the bottom without
timing the market at all simple as that
now not everything elegant and not
everything efficient is exciting yes
this system is boring yes this system
requires discipline but so is cleaning
your room and brushing your teeth but it
is mandatory if you want to have clean
teeth in a clean room and of course as
always I invite you to join our free
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great weekend I'll see you on
Monday
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