Topped

Has the incredible growth of the Nvidia stock price topped? After the quarterly results were released yesterday evening, stock price... dropped! Even though the results were slightly better than expected. That is weird, one would say.

First over to the numbers, Nvidia had a revenue of 30 billion dollars in the second quarter, that is a whopping 122.2 % more than last year. Net profit also went up brutely, from 6.2 billion USD to 16.6 billion dollars. That is a recipe for a price jump, you would say. But it isn't. And why is that?

Expectations too high

Investors have seen the steep climb of Nvidia in the last few years, to a company with a whopping capitalization of 3.2 trillion dollars. And there comes the confirmation bias into play, investors think that these huge leaps will be repeated. Which is of course impossible. The gains that Nvidia has made in the last years, are impossible to repeat, as they were practicly the only one in a complete blank market. Now they are established, but the market is also a bit saturated. So there is still room for growth, but more in a linear way than in an exponential way. Which in my opinion is very healthy for the company.

43 times profit

Currently Nvidia is traded at 43 times the yearly profit. That is high, substantially high. Investors thought that the results would be that good, that it would dissolve this into 15 or maybe 20 times the profit. So there was again room for stock price growth. Which is obviously not the case, so the price dropped, after publishing magnificent results. Weird, but actually completely normal. It is even a fact that share price of Nvidia is actually expensive. 43 times the year profit is high, and 15 to 20 times would be way more reasonable. But it still has the upwards potential in it for a few years, so it stays at this price. But I don't see it doubling in a matter of months like it did before...

Common sense took over, I like it!

Sincerely,

Pele23

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