Nvidia's Stock Price Is Detached From Reality

The extreme valuation of Nvidia's $NVIDIA (NVDA.US)$ stock suggests holders are likely to experience negative returns for years if not decades to come as they learn first-hand that great companies do not always make great investments. The 34% decline in Tesla’s $Tesla (TSLA.US)$ share price since its peak valuation in January 2021, despite a 13-fold rise in earnings, should be a warning sign, as should the performance of Cisco $Cisco (CSCO.US)$ following the dot com bubble peak. Nvidia is trading at similarly extreme levels as we saw at these bubble peaks, with a price-to-sales ratio of 25x and a price to free cash flow ratio of 175x.