Nvidia Is Proof That Great Stocks Always Appear Expensive
I believe NVDA is still relatively early in its lifecycle. For a guide, investors can look to Apple's history.
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We have positive but quiet trading on Thursday, with breadth running more than two-to-one positive, but few pockets of strong speculative trading. There are a few big movers like Rocket Lab RKLB, TSS Inc TSSI, and Nektar Therapeutics NKTR, but only a couple of dozen stocks are moving up more than 10% and traders aren’t doing a lot of chasing.
The indexes continue to push to new highs and are frustrating many bulls who are extremely anxious for even a shallow pullback that will make entries a little easier. As I’ve often written, strong markets tend to stay sticky to the upside. They don’t just suddenly collapse, because there are so many folks who are waiting for pullbacks to buy.
Nvidia NVDA, which I highlighted on Wednesday, is hitting another new high. New highs present a conundrum for many investors. The first thing many people learn about the stock market is "buy low, sell high." That is obviously a very effective strategy, but if you want to buy stocks that will be huge winners, then you can’t be afraid of new highs.
If a stock is going to double, triple, or go up 10-fold, then it has to trade at new all-time highs quite often. If you sell every time a stock hits a new high, then you will miss out on the truly great stocks.
The irony of great stocks is that they always appear to be expensive. They don’t make it easy by offering valuations that are obvious bargains. Great stocks are expensive, because they consistently outperform expectations, and that isn’t something that is reflected in metrics like price-to-earnings or growth rates.
It certainly is possible that NVDA is a late-stage stock at this point, but compare its life cycle to Apple AAPL. Apple was the king of the market for decades and never looked very cheap. I suspect that NVDA is still relatively early in its life cycle as a great stock.
The market is holding up very well as I write and that is sucking in more buyers who are feeling some fear of missing out as the business media talks about new all-time highs. Also, keep in mind it is the end of the second quarter, and there is some major index rebalancing at the close on Friday. That is preventing any aggressive selling.
At the time of publication, DePorre was long NVDA.
