1 Chart That Destroys The Nvidia Bear Thesis

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Nvidia's (NASDAQ:NVDA) accomplishments speak for themselves, but despite the stock having grown to a market cap of more than $5 trillion and it becoming the most profitable company in the world, there's still a lot of skepticism facing it.

Even as revenue nearly doubled in its most recent quarter, the stock trades at a price-to-earnings ratio of just 29, roughly in line with the S&P 500, indicating that investors expect its long-term earnings growth to generally resemble the broad-market index, even though it more than doubled net income in its latest quarter and expects strong growth to continue at least through 2027.

There are a number of reasons why Nvidia doesn't get the premium you might expect for a company growing this fast. First, the semiconductor industry is historically cyclical, and investors are expecting the momentum in the AI boom to eventually fade. At that point, Nvidia's revenue and earnings growth could turn negative as it has in past cycles. Second, competitors, including Nvidia's hyperscaler customers, are building their own chips to substitute for Nvidia components. While they're unlikely to replace them entirely, it could signal that Nvidia's competitive advantage is likely to erode over time. Finally, some investors think that depreciation in Nvidia's chips is an outsize risk facing the company and the broader AI boom. If its chips lose their value quickly, that is likely to hurt their selling price and the broader sustainability of AI, as eventually, Nvidia's customers will need to sell enough services to pay for its chips.

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