Having added nearly Tesla Inc.’s entire market capitalization in the past two months alone, Nvidia is worth $1.72 trillion, just shy of Amazon at $1.76 trillion, as of Thursday’s close.  Google-owner Alphabet, the third most valuable US company after Microsoft Corp. and Apple Inc., isn’t too far away at $1.82 trillion. 

The shares are up more than 40% in so far in 2024 amid signs that demand for its chips used in artificial intelligence computing remains strong. But the stock has run so far, so fast that it’s reigniting concerns about whether the gains are sustainable, ahead of Nvidia’s earnings due later this month. 

The surge prompted Michael Cuggino, president at Permanent Portfolio Family of Funds, to sell some Nvidia shares.

“There is so much money chasing it that we thought it was prudent to trim our position a bit,” he said in an interview. “It still has a good future, but it’s too rich.”

Its valuation, which spent the second half of 2023 steadily falling as Wall Street’s profit projections ballooned, is now rising again. Nvidia’s price to estimated profits has risen to 33 times, up from 25 times at the start of the year and near its highest level in months.

Nvidia is the top-performing component of the Nasdaq 100 Index this year, just as it was over 2023, when shares more than tripled. The stock is by far the biggest outperformer among members of the so-called Magnificent Seven, in large part because it has shown the most significant jump in sales and profits as a result of AI-related demand.

It’s not as if Wall Street is losing its conviction in Nvidia’s profit growth. The average of analyst estimates for 2024 adjusted earnings has risen 14% in the past three months to more than $12 a share. The upward revisions simply haven’t kept pace with the stock, which has added about $600 billion in market value over the same span.

Nvidia’s multiple is hardly at nosebleed levels. Compared with other megacap tech stocks, it’s in the same league with Microsoft and Amazon and cheaper than Tesla. However, the valuation, coupled with the scale of its rally over the past several quarters, suggests additional gains may be harder to come by. 

The stock recently broke above the average analyst price target for the first time since May, suggesting that even Wall Street firms, more than 90% of whom recommend buying the stock, aren’t expecting more upside. The rally also brought Nvidia’s 14-day relative strength index to 80, above the level of 70 that signals to some technical analysts that a stock is overbought.

Still, bulls can easily point to fundamentals to justify the advance, including a bullish forecast from Arm Holdings Plc, which soared a record 48% on Thursday. The chip designer’s CEO singled out AI as a long-term driver, saying it “is not in any way, shape, or form a hype cycle.”

Nvidia’s last several reports have supported that view by surging past expectations. Revenue is seen rising about 120% over its 2024 fiscal year, with another 60% growth expected next year. The centrality of processing chips to AI, along with Nvidia’s perceived technical superiority, has many convinced that the growth it is seeing is both durable and long-term in nature.

Gus Zinn, senior portfolio manager at Macquarie Asset Management, is among those who think Nvidia’s rally has more room to run, and he stressed that even with the advance, the valuation is well off recent peaks.

“A lot of companies are talking about AI, but none have seen revenue grow or estimates change like Nvidia, and the stock is really just keeping pace with the rising expectations,” he said. “The valuation is not the hurdle — the hurdle is, how long is this going to go on? Obviously it won’t grow this fast forever, but I think it will go on for longer than people think, and be bigger than people realize.”