(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

NVIDIA Corp.'s (NVDA) revenue and stock growth is reminiscent of Intel Corp. (INTC ) in the 1990's, rising to seemingly unimaginable heights and confounding both the skeptics as well as the optimists. NVIDIA is the same euphoric valuation story, only in a different decade. 

When NVIDIA reports quarterly results, they don't beat Wall Street consensus estimates; they crush estimates. All of the big quarterly beats are causing even the bulls to get more bullish. RBC Capital Markets has raised its price target to $250 from $240, but it has not been the only firm.       Consensus revenue estimates have come up sharply as well.

The astronomical rise of NVIDIA's stock is something to admire, but should also be alarming. Look at what happened to Intel.

Intel's Euphoric Rise

INTC Revenue (Annual) Chart

INTC Revenue (Annual) data by YCharts

Intel's Euphoric Rise

During most of the 1990's, Intel had the benefit of being the dominant chip player as it boosted revenue nearly 10-fold from $3.921 billion in 1990 to $33.73 billion by the year 2000, a compounded annual growth rate (CAGR) of roughly 24 percent. During that time, the company's market cap rose by more than 75-fold, from $6.55 billion to $501 billion by its peak in August of 2000, a CAGR of roughly 54 percent. It wasn't until after the year 2000, when the economy hit a recession and the stock market bubble popped, that Intel's stock crashed. 

NVDA Market Cap Chart

NVDA Market Cap data by YCharts

NVIDIA Warnings

NVIDIA also is growing at a fast rate and the valuation the market is assigning to the stock is incredibly stretched, as occurred with Intel's shares. NVIDIA's revenue more than doubled from $3.06 billion in 2007 to $6.91 billion in fiscal 2017, a CAGR of only 8.5 percent. Meanwhile, it's market cap has climbed by nearly 11-fold, from roughly $12 billion to $130 billion, a CAGR of nearly 27 percent.  

That rapid inflation of NVIDIA's valuation relative to its slower internal growth risks creating a huge stock bubble that will eventually pop.

That's what happened to Intel. Nearly 18 years after Intel's market value peaked, its value currently sits at $210 billion, roughly 60 percent below its $501 billion high in 2000. That's even though Intel's revenue has grown to roughly $60 billion and is expected to reach $66 billion by 2019. 

Surprising facts, which may temper NVIDIA investors' euphoria as the shares ascend to new heights.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

 

 

 

 

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