Everybody and his uncle knows that Nvidia (NASDAQ:NVDA) will benefit from the popularity of artificial intelligence (AI) in 2023. This is already known and priced into NVDA stock. Therefore, value-seekers and contrarians shouldn’t be too eager to invest in Nvidia now.
By the time you read this, Nvidia may have already published its second-quarter earnings results. Naturally, financial traders will be excited about Nvidia’s quarterly performance. It shouldn’t be too surprising if they push the share price higher over the ensuing days.
In anticipation of this, the experts on Wall Street are overwhelmingly bullish about Nvidia’s prospects. This makes it psychologically difficult to be a true contrarian. Yet, always remember that when everyone’s crowded into one side of a trade, that’s typically your signal to get out.
NVDA Stock Goes Over the Top
Even among beloved tech names, Nvidia truly has an over-the-top valuation. Yet, somehow the investing community has come to accept Nvidia’s trailing price-to-earnings (P/E) ratio of 227x as normal and acceptable.
It’s a sign of the times, I suppose, but it’s also reminiscent of how the market treated Cisco Systems (NASDAQ:CSCO) in early 2000. The trajectory of NVDA stock in 2023 should give seasoned investors a feeling of deja vu.
So now, analysts are scrambling to give Nvidia the most effusive praise they can. Piper Sandler analyst Harsh Kumar expects the company to “beat estimates across the board,” while Raymond James analyst Srini Pajjuri similarly envisions that a beat-and-raise will help to “keep the stock going.”
Both of those analysts recently raised their NVDA stock price targets to $500, as did analysts with Wells Fargo. Furthermore, Wells Fargo analyst Aaron Rakers declared that it’s “hard to bet against” Nvidia’s “pre-eminent positioning as the primary beneficiary of an AI-driven architectural data center transformation.”
Is Nvidia Really a ‘Kingmaker’?
Lately, it seems that a $500 price target isn’t optimistic enough for NVDA stock. For instance, UBS analyst Timothy Arcuri raised his price target on the stock from $475 to $550.
Meanwhile, Baird analyst Tristan Gerra lifted his price target on Nvidia shares from $475 to $570. Thus, I suspect that before the year is over, a $550 or even a $600 price objective won’t be good enough.
Again, the price target raises typically come with frothy praise. Gerra anticipates “another supercycle” for Nvidia, while Arcuri proclaimed that Nvidia is “is quite literally serving as ‘kingmaker.’”
I’m sorry, but here’s where I have to raise an objection. Since when is Nvidia “literally” a “kingmaker”? It’s one thing for someone to name NVDA stock as a “top pick,” as Morgan Stanley analysts recently did.
But the last time I checked, Nvidia doesn’t have the power to choose new leaders or influencers. To me, it sounds like Arcuri is caught up in the cycle of one-upmanship as analysts strive to outdo each other in praising Nvidia this year.
NVDA Stock: The Escalator Will Go Down at Some Point
If you’re a contrarian and/or value investor, the preponderance of overwhelmingly positive sentiment surrounding Nvidia should set off some alarm bells. It’s gotten to the point where it’s hard to find any dissenting voices nowadays.
I’ll offer a dissenting voice, even if I won’t win any popularity contests this way. Nvidia is so beloved on Wall Street, and its valuation is so elevated, that I find it alarming. Consequently, I recommend taking profits on NVDA stock if you have any, and avoiding it if you don’t already own it.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
