After reaching a valuation of more than $800 billion in late 2021, Nvidia (NASDAQ:NVDA) shares fell sharply — intermittently by as 70% from the all-time high. With that frame of reference, Nvidia's fundamentals were pressured by a slowdown in gaming, crypto-mining and the broader personal computer market. However, on the backdrop of the ChatGPT tailwind, NVDA stock has started to rebound aggressively, reflecting investor optimism about the potential of generative AI technology.
While I acknowledge the tailwind that Nvidia is likely to see from AI computing, I also argue that the thesis remains speculative, given the early stages of the technology. Moreover, investors should consider that the market is already pricing lots of optimism–with NVDA shares valued at a FWD EV/EBIT of close to x60.
Nvidia is scheduled to report Q4 2022 earnings on February 22nd, and I assign a 'Hold' rating pre-announcement.
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