Nvidia is a bubble, warns Rob Arnott

High-profile investor and Research Affiliates founder Rob Arnott is the latest name to sound the alarm on Nvidia’s valuation.

Arnott agrees the artificial intelligence (AI) chip company, valued at over $1.1 trillion (€1.02 trillion) after more than tripling in 2023, has “terrific long-term business prospects”. He also agrees with today’s narrative around AI, saying it will revolutionise the economy and people’s lives. However, while investors are “understandably euphoric” about Nvidia’s prospects, the company’s stock price may be a bubble.

Arnott notes that the late 1990s narrative around the internet being a revolutionary force was correct, but this didn’t help investors. He gives the example of Qualcomm, which has badly underperformed the market over the last 23 years even though its profits rose 60-fold.

Indeed, not one of the 10 most valuable technology stocks at the peak of the dotcom bubble beat the market by the time of the next bull market peak in 2007. By the end of 2022, only one (Microsoft) had beaten the market.

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Nvidia enthusiasts might bristle at the dotcom comparison. Arnott admits that, unlike many dotcom stocks, Nvidia has a long, strong track record of sales and profits. However, Nvidia’s stock price “reflects a certitude” it will continue to dominate and that it won’t be troubled by competitors and regulators who “love to take the largest companies down a notch”.

AI will change the world, says Arnott, but investors should be wary of a “great company priced beyond perfection”.