'Dean of Valuation' Aswath Damodaran says Nvidia's stock is overvalued even considering its bright prospects

Aswath Damodaran. Twitter.com/aswatchdamodaran

• Nvidia's stellar stock rally has been the highlight of this year's US equity-market trends. 
• But 'Dean of Valuation' Aswath Damodaran thinks even Nvidia's bright prospects can't justify its current high valuation.
• Still, the company has stood out by finding opportunity in niche markets, the NYU finance professor tweeted.

Nvidia's stellar 178% stock surge has been the highlight of this year's US equity-market rally, with investors betting the chipmaker will be one of the biggest beneficiaries of the artificial-intelligence boom.

But even a 10-fold jump in revenues and operating margins approaching 40% over the next decade would translate into a share price of only $240, well below the current market level of around $410, according to NYU finance professor Aswath Damodaran, who earned the nickname 'Dean of Valuation' for his focus on estimating the value of assets. 

A value per share of $400 or more is possible if Damodaran replaced point estimates, which express the projection as a single value, with distribution estimates that reflect his uncertainty - but it's still unlikely, he said in a lengthy Twitter thread on Friday.

While the semiconductor industry saw a drop in growth over the last 20 years, Nvidia has remained opportunistic, according to Damodaran. It has continued to grow and rake in high profits by getting ahead in niche markets, he said, citing its forays into gaming and crypto in the last decade and AI recently. 

"My NVIDIA story is built around a dominant market share of a growing AI market and a sizable market share of Auto chip market, in conjunction with continued, albeit slackening growth, in its more traditional markets," he tweeted. 

AI will likely bring about "extraordinary changes" to financial markets and everyday life, according to Damodaran. But going by history, only a few players will win big and that will "cause investors more disappointment than hope - especially if they buy into buzzwords," according to him. 

Damodaran cashed in his Nvidia stake recently after the chipmaker touched a $1 trillion valuation for the first time at the end of May and joined a handful of companies including Apple, Microsoft, Alphabet, and Amazon that have reached that threshold.