The frenzy of Wall Street, often driven by FOMO, can propel stocks to astronomical heights that seem to defy gravity. Currently, Nvidia (NASDAQ: NVDA) is riding high on a wave of success, with its share price reflecting this exuberance. However, a cautious investor who delves into market history would be wise to pause before joining the Nvidia bandwagon.
The Remarkable Ascent of Nvidia’s Stock
Nvidia’s claim to fame lies in its production of high-powered AI chips, a sector that is currently the darling of the technology industry. Fuelled by the AI craze, Nvidia’s stock has been on a meteoric rise. In merely a year, shares have surged by 223%. Over the past three and five years, the gains are a staggering 550% and 1,860%, respectively.
Image source: Getty Images.
As one gazes at Nvidia’s price trajectory resembling a launch into space, there’s a magnetic allure for investors. Yet, as history warns us, such dizzying climbs often presage a fall.
Ben Graham’s Cautionary Tale from the Past
Benjamin Graham, mentor of Warren Buffett and author of the investment classic The Intelligent Investor, cautioned that a great company could turn into a poor investment if bought at an inflated price. For a chilling example, one need only look at Cisco Systems (NASDAQ: CSCO). The graph below tells a tale of soaring heights followed by a harrowing descent.
Illustrating the aftermath of the dot-com boom, Cisco’s stock has yet to recoup its losses from the subsequent crash. Such historical precedents should give any Nvidia devotee pause for thought.
Don’t Overlook the Force of Gravity
In the realm of stocks, few can defy gravity indefinitely. Even Tesla (NASDAQ: TSLA), a once-revered titan, has seen its shares plummet by approximately 50% post its profitability milestone in 2020, with a further 60% nosedive from its all-time highs in late 2021. The moral? Stories may dazzle on Wall Street, but fundamentals ultimately dictate the trajectory of stock prices.
Guard against succumbing to FOMO. While Nvidia stands tall as a remarkable company, investing at a bloated price may lead to dismal returns in the long run.
Final Thoughts on Investing in Nvidia
Before diving into Nvidia stock, ponder this:
The analyst team at Motley Fool Stock Advisor has identified what they deem to be the 10 best stocks for future gains – with Nvidia notably absent from this prestigious list. These chosen stocks are poised to deliver substantial returns over the coming years, outstripping S&P 500 performance since 2002*.
Make informed investing decisions, and remember – while Nvidia shines bright now, the future remains uncertain. Market history is a persuasive ghost, lurking to remind us that even the grandest rockets can come crashing down.
*Stock Advisor returns as of April 4, 2024
