Image Source: Generated by Unbounded AI tool
Source: Cailian Press
Author: Huang Junzhi
Legendary investor and Chairman of investment firm Research Affiliates, Rob Arnott, recently warned that the stock of Nvidia has formed an asset bubble after an astonishing rebound this year, and if the bubble bursts, it could trigger a larger market crash.
He classified Nvidia's stock as a "textbook case of market delusion." This year, due to the hype around artificial intelligence, Nvidia's stock price has surged by as much as 228.75%.
"Will the collapse of Nvidia drag down the entire market? This is very likely," he said.
Research Affiliates is an outsourced advisor to the large U.S. asset management company Pacific Investment Management Company (PIMCO), founded by Arnott in 2002. It is an asset management company focused on research and innovative asset allocation and alternative index products.
In fact, driven by investors' excitement about artificial intelligence, Nvidia's valuation has soared to astronomical levels, prompting multiple market commentators to sound the alarm. Traders believe that as a leader in chip manufacturing, Nvidia is indeed in a favorable position to capitalize on the expected surge in demand for high-end computing devices related to artificial intelligence.
However, some experts argue that the company's stock price is unreasonably high and its valuation is fundamentally unrealistic. The stock's price-earnings ratio is about 117 times, while the overall price-earnings ratio of the S&P 500 index is 26 times.
"An overconfident market paradoxically translates the brilliant future business prospects into even more brilliant current stock price levels," he added. "Nvidia is the epitome of this type today: a great company whose market pricing surpasses the perfection of its (prospects)."
He said that investors flocked to Nvidia in part because its $1.2 trillion market value made it a "safe investment." However, it is not "too big to fail."
"Our risk is that Nvidia has achieved incredible success, but will it rise tenfold again in the next 10 years? I would say that is unbelievable, so I can confidently call it a bubble," he added.
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