To The Moon

Lately, the king of AI $NVIDIA Corp(NVDA)$ has been on a crazy downtrend, falling over 16% in just three trading days, causing investor panic!

You might be wondering,

what's the sudden crash about?

First off, crashes often follow rallies. Before this dip, Nvidia had a whopping 78% gain, and its year-to-date surge was even more impressive, at 184%, surpassing $Microsoft(MSFT)$ and $Apple(AAPL)$ to become the global champ!

After such a rally, Nvidia's technical indicators were overbought, signaling a need for a correction.

Secondly, Nvidia execs have been selling stocks in droves recently, even Jensen Huang cashed out nearly $100 million! According to The Washington Service, Nvidia execs have dumped $7 billion worth of shares this year, a two-year record.

Sure, that's not a huge chunk of Nvidia's nearly $3 trillion market cap, but it doesn't rule out some institutions and investors following suit, creating a butterfly effect.

Finally, Nvidia's valuation is at an all-time high! Based on price-to-sales, Nvidia's valuation hit 40.8x, surpassing the 33.8x during the 2021 semiconductor bull market.

With such a high valuation, it's highly likely for the stock price to fluctuate. The key question is,

Is this a bubble burst or just a normal correction?

Analysts predict Nvidia's sales will hit $120.3 billion in fiscal 2025. Based on that, Nvidia's forward price-to-sales ratio is 24 times, lower than the 2021 high.

Given Nvidia's dominance in AI GPUs, it's tough for $Advanced Micro Devices(AMD)$ and $Intel(INTC)$ to grab market share from them. So, Nvidia has a good chance of hitting that $120 billion sales target!

At the same time, with AI GPUs in high demand and profitability soaring, theoretically, higher profitability could justify a higher price-to-sales ratio. So, Nvidia's valuation high could hit 40x!

Therefore, Nvidia doesn't seem to have a bubble yet. Its future growth will be driven by earnings, not just market speculation. If Nvidia meets analysts' expectations, its market cap could peak at around $4.8 trillion, or even hit $5 trillion!

The semiconductor valuations will depend on earnings reports

Other AI semiconductor giants like $ARM Holdings Ltd(ARM)$ are in a similar boat. Arm's price-to-sales ratio is 48 times, higher than Nvidia and even its peers like $Synopsys(SNPS)$ , which only has a 12x!

In summary, after a big rally, the semiconductor industry's valuations are near historical highs. The next move will depend on earnings reports. Keep an eye on those!

AI and semiconductors are the heart of this US stock market bull run. Though Nvidia fell fast and hard, it hasn't sparked a market panic. The $NASDAQ(.IXIC)$ only dipped 2.5% during the same period.

And in the biggest decline yesterday, in addition to semiconductors, most of the other sectors rose. That shows investors aren't panicking, this is probably just a normal correction.