Warning that Nvidia bubble will burst after 232% surge in a year

Its CEO became $6.5 million richer overnight, but now experts are warning that could all come crashing back down.

The prominent head of an investment firm has issued a sobering warning against a tech stock that has surged by 232 per cent so far this year.

US computer chip-maker Nvidia (pronounced en-vid-eya) has had an unprecedented time on Wall Street in the past few months, with the business posting a record revenue of $21 billion ($AUD) for the latest quarter.

Nvidia’s CEO and founder Jensen Huang became $6.5 billion richer over a single night in late August off the back of the news and the company’s current market cap is $1.8 trillion.

That growth was driven by the surge of interest in artificial intelligence and the expected demand for its computer chips that process it.

But one expert thinks this won’t last and believes the Nvidia ‘bubble’ will soon burst in an explosive fashion.

Robert Arnott, US investor and chairman of Research Affiliates, has watered down expectations of Nvidia’s future prospects.

Nvidia is “a textbook story of a Big Market Delusion” Mr Arnott wrote in a scathing note.

Jensen Huang is the founder and CEO of Nvidia. Picture: Sam Yeh / AFP

Nvidia has been called out for its unprecedented gains. Picture: Justin Sullivan/AFP

Mr Arnott pointed out that Nvidia’s shares are trading at around 110 times its earnings, which is not viable in the long run.

“Overconfident markets paradoxically transform brilliant future business prospects into even more brilliant current stock price levels,” he continued.

“Nvidia is today’s exemplar of that genre: a great company priced beyond perfection.”

In an interview, Mr Arnott made another explosive prediction. When asked what would happen if Nvidia did crash, he said “it’s very possible” such an event would drag down the entire market.

Mr Arnott has unleashed damning analysis on other major stocks. In December 2020, he predicted that Elon Musk’s Tesla Inc would drag down the top 500 listed companies.

Nvidia has had a good year so far but one market analyst has called it a bubble.

Earlier this year, in May, Nvidia passed the much-coveted US$1 trillion benchmark.

At time of writing, its market cap hovered slightly above this, at US$1.2 trillion (A$1.8 trillion).

That puts the company in the same exclusive $US1 trillion club as Apple, Microsoft, Alphabet (parent company of Google) and Amazon.

Mr Huang established Nvidia in 1993 on his 30th birthday to bring three-dimensional graphics into the gaming and multimedia markets.

The Taiwanese-born tech whiz — who moved to Kentucky at age 9 — reportedly dreamt up the chip giant alongside fellow engineers Chris Malachowsky and Curtis Priem at a Denny’s restaurant in San Jose, California, where he had worked part-time before getting his masters degree from Stanford University.

Originally published as Warning that Nvidia bubble will burst after 232% surge in a year