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NYU’s Aswath Damodaran Calls NVIDIA Corporation (NASDAQ:NVDA) a ‘Money Machine’

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4 months ago

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NYU’s Aswath Damodaran Calls NVIDIA Corporation (NASDAQ:NVDA) a ‘Money Machine’

We recently published a list of 7 Best AI Value Stocks That are ‘Money Machines’ According to NYU’s Aswath Damodaran. Since NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look.

Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University. His thoughts on economy and stock valuations are given a lot of weight by analysts. Damodaran in his recent interview with CNBC said that Magnificent Seven stocks have become the “value stocks for investors who care about earnings and cash flows.”

“We look at the last year and a half, they’ve added $8.8 trillion in market cap… just these seven companies. Just to give you perspective, the second-largest market in the world, China, has a market cap of $12.1 trillion. These seven stocks alone have added more in market cap than the entire German market, the French market, the Swiss market.”

Damodaran’s comments are important because he’s been repeatedly saying in the past that major technology companies are fully or overvalued. In September, he said on CNBC that if you go through the list of top tech stocks, “you are more likely to be overvalued than undervalued.”

But in his latest interview, Damodaran said that before we “dismiss” Mag. 7 stocks as “risky tech companies,” we should keep in mind that “these are the money machines in this market.”

However, when asked whether he believes we are not in any kind of “danger zone,” the professor said we are in the danger zone not just in terms of these seven stocks, but the market overall.

In this article we take a look at the Mag 7. stocks and their AI-related growth catalysts. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Is NVIDIA Corporation (NASDAQ:NVDA) Best AI Value Stock That is ‘Money Machine’ According to NYU’s Aswath Damodaran?

Is NVIDIA Corporation (NASDAQ:NVDA) Best AI Value Stock That is ‘Money Machine’ According to NYU’s Aswath Damodaran?

NVIDIA Corp Inc (NASDAQ:NVDA)

Number of Hedge Fund Investors: 186

Aswath Damodoran has been skeptical about NVDA over the past several months, saying repeatedly that the stock looks overvalued. In March, when he was asked about his previous predictions (that proved wrong) about NVDA valuation, the professor said that either he has “no idea what I’m talking about” or it’s the market that just does not understand.

Aswath Damodoran at the time said that while Nvidia was in the “driving seat” of the AI bandwagon, its path to profits won’t be as easy as the market assumes.

Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target to $150 from $110 following the 10-1 stock split.

NVIDIA Corp (NASDAQ:NVDA) is one of the stocks accounting for a huge chunk of the total market returns, thanks to its AI-fueled rally that seems to have no end in sight. NVIDIA Corp (NASDAQ:NVDA) shares have gained about 206% over the past one year.

Recently, Barclays Tom O’Malley gave bullish comments on the stock, with a $145 price target and an Overweight rating. The analyst pointed to a potential $25 billion opportunity from countries building up their AI capabilities. O’Malley expects NVIDIA Corp’s (NASDAQ:NVDA) earnings at $3.62 per share in fiscal 2026, while Wall Street analysts on average have a $3.55 per share estimate for NVIDIA Corp (NASDAQ:NVDA) earnings for 2026.

NVIDIA Corp’s (NASDAQ:NVDA) latest product announcements and its plans revealed at the Computex 2024 show that NVIDIA Corp (NASDAQ:NVDA) has much more in its arsenal to power its growth engine. Analysts like NVIDIA Corp’s (NASDAQ:NVDA) shift to new AI architecture known as Rubin (R100) and think its powerful H100 and Blackwell chips easily beat competitors.

NVIDIA Corp (NASDAQ:NVDA) will start shipping H200 in the second half of this year. At its GTC conference NVIDIA Corp (NASDAQ:NVDA) revealed three accelerators – B200, GB200 and GB200 NVL72. All of these products provide growth catalysts for NVIDIA Corp (NASDAQ:NVDA) shares and justify its P/E multiple of 71, given NVIDIA Corp’s (NASDAQ:NVDA) growth expectation of over 100% this year and 32% next year. Based on 2026 EPS estimate set by Wall Street, NVIDIA Corp (NASDAQ:NVDA) is trading at a forward P/E multiple of 35.74, which makes the stock’s valuation attractive given the growth catalysts it has.

Meridian Hedged Equity Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2024 investor letter:

“NVIDIA Corporation (NASDAQ:NVDA) is a leading designer of graphics processing units (GPUs) for the gaming and professional markets, as well as system-on-a-chip units for the mobile computing and automotive markets. The company has experienced strong performance recently due to booming demand for its data center products, particularly those related to artificial intelligence. A major driver of Nvidia’s recent success has been the growing adoption of its GPU accelerators for AI training and inference across various end markets. The company’s GPUs have become an industry standard for training large language models (LLMs), and its networking solutions, such as NVLink and InfiniBand, are critical to maximizing the performance of AI systems. Nvidia’s latest Blackwell GPU platform is expected to further extend its lead in the AI accelerator market, with significant performance and total cost of ownership benefits over its predecessors. As the AI market continues to expand with growing adoption across enterprises and sovereign nations, we expect Nvidia to maintain its dominance and experience sustained growth in its data center business. Beyond data centers, Nvidia has also benefited from strong demand in its gaming business, which has recovered after a period of inventory digestion in 2022. The company’s gaming GPUs have been well-received, and its focus on the high-end market has supported growth in average selling prices. Looking ahead, we expect the gaming market to remain healthy with ongoing growth potential. Nvidia also sees opportunities to diversify its business and foray into new markets, such as automotive and robotics. We continued to hold our position in Nvidia.”

Overall, NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list titled Jim Cramer’s Latest Portfolio: Top 10 Stocks in July. While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA Corporation (NASDAQ:NVDA) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.

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