DBS Says Nvidia’s Valuation Undercuts Fears of an AI Bubble
As investors debate whether AI companies have raced too far ahead of their earnings, DBS Group’s chief investment officer points to Nvidia’s valuation as evi...
As investors debate whether AI companies have raced too far ahead of their earnings, DBS Group’s chief investment officer points to Nvidia’s valuation as evidence that the rally still has room to run. Hou Wey Fook said on Oct. 5 that the chipmaker’s forward price-to-earnings ratio and expected profit growth do not resemble the excesses of the dot-com era.
Nvidia trades at 17 times its projected earnings over the next 12 months, according to data compiled by Bloomberg, while its earnings are forecast to grow 70% next year, Hou said. He contrasted that multiple with Cisco Systems’ 100-times valuation before the dot-com crash.
A valuation benchmark for the AI trade
“If I describe the poster child of AI trading at mid-teens, how can it be a bubble?” Hou said in a Bloomberg TV interview. He also pointed to continuing tailwinds for semiconductor and AI-related investments.
The comparison offers a counterpoint to concerns that enthusiasm for AI has pushed technology shares into bubble territory. Nvidia has become the emblem of the boom as its chips power AI computing, but its earnings outlook is central to Hou’s case: a relatively modest multiple, paired with rapid projected growth, is different from a share price running far ahead of business results.
Still, the wider market picture is not one-way. A separate analysis cited in the source material said Nvidia’s market value had fallen by about $1 trillion from its peak, as major technology companies develop their own AI chips. That competition could test the company’s position even as demand for AI computing remains a major investment theme.
Hou’s portfolio approach
Hou recommends a “barbell” strategy to manage volatility: hold growth-oriented technology stocks alongside investment-grade bonds, with hedge funds and gold serving as diversifiers between the two sides.
His argument rests on Nvidia’s current valuation and projected earnings, not on a claim that AI stocks carry no risk. But for Hou, the chipmaker’s forward multiple remains a striking contrast to the valuations seen ahead of the dot-com crash — and a reason he says the AI trade is not yet a bubble.
Source: bloomberg.com
