Aswath Damodoran Leaves Entire CNBC Panel SPEECHLESS

Summary

In 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.