Nvidia (NVDA) has had a wild ride, with its stock rising by over 30% annually and crashing multiple times since its IPO. With a market cap of $3.5 trillion, it’s one of the most valuable companies in history but also carries significant risk.
Nvidia operates in a cyclical semiconductor industry, where demand for AI chips fluctuates. This means periods of high growth are followed by downturns, as seen with four crashes over two decades (2001, 2008, 2018, and 2022).
While Nvidia has high margins now, these could drop when semiconductors become scarce during slower demand. This cycle is likely to hit in 2025, causing prices to fall and earnings to stagnate.
Given the cyclical nature of the market, it’s a bad time to buy at current levels with a sky-high P/E ratio (54x) compared to the S&P 500’s average of 30x. The company is trading at nearly twice its historical highs, and earnings are expected to rise only marginally.
Investors should consider selling or waiting for the trough before buying again in 2026 or later, not close to the peak. This high-risk, high-reward stock could offer a nosebleed P/E if the market corrects after a crash.
In summary, while Nvidia is a great company, its cyclical risks make 2025 a time when potential shareholders might be better off exiting and waiting for a more stable period.
Source: https://www.fool.com/investing/2025/01/23/could-nvidia-stock-be-due-for-a-crash-in-2025-here