Nvidia (NASDAQ:NVDA) finally fell, hard making Nvidia stock look vulnerable for the first time in a while. Analysts are focused on the $80 per share fall on April 19, it’s now trading 14% below where it was a month ago, when it peaked at $950/share. You could get in early on April 23 below $825.
But Nvidia stock is still not cheap. The market cap at the current price is $2 trillion. You’re still paying 66 times earnings and 33 times sales for a chip stock. Those are very high prices. A better question is, if you’ve been in it five years like I have, is it time to take profits? After all, you don’t have a profit until you sell and put money in your pocket.
Sell the Rebound on Nvidia Stock ?
All booms bust. This will be true for artificial intelligence as it was for the internet.
Monopolies also end. Nvidia currently has 97% of the data center market for graphics processing units, the number-crunching chips that are its specialty. That’s thanks to its software, like Cuda, a full stack of tools for building AI applications.
Nvidia made a quick bounce off its lows, recouping about one-third of its most recent fall in a few days. But the whole semiconductor complex has fallen out of bed. Taiwan Semiconductor (NYSE:TSM), Advanced Micro Devices (NASDAQ:AMD), and even Intel (NASDAQ:INTC) have fallen hard lately.
Veteran Nvidia analysts aren’t worried. Some are even reiterating their outperform ratings.
AI Performance
A better question is why worry about AI stocks at all?
Today’s concerns are all about falling interest in consumer AI applications , which seem like games. Some of the potential uses are truly creepy.
But that’s not the market. The early stages of the AI boom are all about vertical applications, built on internal data sets with defined outputs.
It’s about AI assistants. These applications are showing real value, in the form of increased productivity. Enterprise buyers are hungry for more. AI tools have become a C-Suite obsession.
The market is still booming.
Where We Are With AI
We are well past the “gee whiz” stage of AI, although gee whiz applications are being written up every day.
AI is now where the internet was in about 1997. That’s when I first warned of a dot-com bubble and people started worrying about the Web’s implications. We’re not at 2000, when the bubble truly burst.
The most relevant worry for Nvidia is the energy use of its chips, which threatens to overwhelm the grid. This is something Cloud Czars like Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) dealt with two decades ago, recycling their heat and adding back-up power.
The trouble is this problem is no longer confined to cloud data centers.
Joe McKendrick, one of my favorite tech analysts, has it right in saying that, over time, AI fades into the background.
We no longer think about e-commerce, it’s commerce. We no longer think about the mobile web. It’s the Web. The same will be true for AI. It will be absorbed into what already exists.
It’s in getting there that the money will be made.
Not just by Nvidia, either.
The Bottom Line
The AI market isn’t exactly like the internet market.
The internet was a consumer-first market. Everyone could use the early internet, and that was part of its charm.
AI applications are expensive to make. Right now, they’re best done for niches. This realization is behind the current market disillusionment. But the future of AI is so bright you do need shades.
Nvidia isn’t going anywhere. But it is more than fairly valued here. You can buy this dip and then you can sell the bounce.
As of this writing, Dana Blankenhorn had a LONG position in, NVDA, TSM, INTC, and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
