Wall Street's 'Dean Of Valuation' Thinks 'You're Setting Yourself Up To Lose' With Nvidia By Playing 'The Plausible Game' — Says This Is What Investors Need To Ask Before Getting In

While Wall Street continues to sing paeans about Nvidia Corp.‘s NVDA prowess in artificial intelligence, one investor has voiced skepticism about its current investment appeal.

What Happened: New York University professor Aswath Damodaran, known as the “Dean of Valuation,” cautioned against considering Nvidia as a good long-term investment. In a CNBC interview on Thursday, Damodaran said: “Right now, Nvidia is in a strange place…it’s a great trade but not a very good investment.”

“Trading is about mood and momentum, and when you think mood and momentum, I don’t think I have ever seen a company celebrated as much as Nvidia,” he said.

He noted Nvidia’s CEO Jensen Huang is celebrated as the “greatest CEO ever walked on the face of the earth” and people are hyping it up by saying the company cannot be stopped.

Damodaran, called the “Dean of Valuation,” said this is a perception that drives prices up. “From mood and momentum, at some point in time, the fever breaks, and the question is when that’ll happen for Nvidia. It will still be a great company, but I think the pricing is a little bit out of control,” he said.

The professor, however, did not rule out the gravity of the AI revolution. “I think we have to accept his AI is real, it’s going to make a real difference to business and I think Nvidia is in the front seat of that market,” he said.

“That said though that pathway is not as easy and as open to profits as the market seems to be assuming it is.”

See Also: Best Artificial Intelligence Stocks

Is Nvidia Worth Getting In Now? Damodaran, who had a position in Nvidia, sold his stake in the chipmaker last year, reasoning that he couldn’t hold onto the stock as a value investor, especially following its strong run-up.

On Thursday, the value investor said the “question to ask now if you’re an investor is, if I get in now, what am I pricing it.”

If you remove the $2 trillion market cap from the pricing to break even, Nvidia has to add about $400 billion in revenues to what it has now, he said. For the fiscal year 2024, the company reported revenue of $60.92 billion.

Damodaran sees this as a daunting task but it is plausible. “But investing is about the game of the probable and if you play the plausible game, you’re setting yourself up to lose. You’re done,” he said.

The NYU professor, however, said all engines of Nvidia are firing at full force right now and the company could beat earnings and revenue expectations again. This is what pricing is all about, he said.

“That’s why I said it’s a good trade. It’s in the near term they’re more likely to deliver upside surprises but in the long term if you price the company to be the best company ever where is the upside.”

Damodaran’s views contrast with many on the Street. CNBC Mad Money host Jim Cramer has been recommending Nvidia as a stock to hold and not one to trade. Deepwater Asset Management’s Gene Munster concedes that we are in an AI bubble but sees the bubble lasting for another three to five years.

Nvidia ended Thursday’s session up 1.87% at $791.12, according to Benzinga Pro data.

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