After holding it for five years, what did the "valuation master" see when he sold NVIDIA?

NVIDIA has just become the world's first chip manufacturer with a market value exceeding one trillion US dollars. Aswath Domodaran, a finance professor who has been investing in NVIDIA since 2017, sold his shares in the company.

He is known as the "Dean of Valuation" on Wall Street. In a recent interview with CNBC, Domodaran said, "The recent surge is simply astonishing. As a value investor, I cannot justify holding onto NVIDIA any longer."

NVIDIA's stock price has soared by 194% this year, making it the best-performing stock in the S&P 500 index. Driven by the wave of artificial intelligence, NVIDIA's stock price has skyrocketed, pushing its market value beyond one trillion US dollars.

It is worth mentioning that Domodaran is a finance professor at New York University's Stern School of Business, and he is known as the "Dean of Valuation" for his focus on estimating asset values.

Domodaran estimates that NVIDIA currently holds an 80% market share in the $25 billion AI chip market. The most optimistic forecast is that this market will reach $350 billion in size in 10 years. Even if NVIDIA's future market share reaches 100%, Domodaran's valuation is still 20% lower than the recent stock price. However, no matter how he calculates it, he cannot come up with a valuation of over $400 per share.

Regarding why he sold NVIDIA, Domodaran pointed out:

"NVIDIA is fundamentally a hardware company and faces inherent limitations when selling chips to other companies. Other members of the trillion-dollar club have a wider range of products and multiple ways to make money.

Apple, Alphabet, Amazon, and Microsoft attract a large number of end users to their ecosystems through software, creating a 'long tail distribution' of business opportunities, where they profit from new products and services.

The benefits obtained by companies in the tail end of the distribution are often not as significant as those of consumer-based companies with billions of users. This affects my willingness to bet on them."

This aligns with the views of Cathy Wood, who previously stated that the next wave of opportunities in AI lies in software.

However, Domodaran stated that he still likes NVIDIA and considers it an outstanding company.

NVIDIA has found every opportunity in the market and has found ways to cater to it, whether it's cryptocurrency, gaming, or now artificial intelligence. It always seems to be the first to seize its opportunities, which cannot be a coincidence.