Did Jensen Huang Just Put to Rest the “AI Bubble” Fears?

Nvidia (NASDAQ:NVDA) reported some pretty stellar quarterly results, and with upbeat commentary from CEO Jensen Huang, it seemed like the “AI bubble” fears were off the table for a while, at least as of Thursday morning, when stocks bounced back with fury, only to shed the gains and then some going into the close.

Undoubtedly, investors were taken on quite the ride, to say the least. And while it’s never fun to see gains from a great quarter be wiped out in short order, I do think that it’s such painful days that lead to the greatest opportunities. Buying on days when it can be quite sickening to check in on your stocks might just be necessary to get a price of admission into a cherished name at a discount.

Nvidia’s quarter caused cheers, but they quickly turned to boos. Is an AI bubble still on the table?

With a Fed rate cut in December now in doubt, it seems like markets are ready to look into the new year for catalysts. Whether that’s the next round of earnings season or the next big Fed meeting, there might not be anything other than oversold conditions that pave the way for a year-end bounce. So much for those predictions of the S&P 500 hitting the 7,000 level!

Though some big-name strategists and analysts still think a year-end move could be in the cards as this latest sell-off looks to make its next move (V-shaped bounce or a continuation of this horrid losing streak?), I wouldn’t get my hopes up for new records before the holiday season. It’s been quite a while since we’ve seen such a negative market reaction to a broad basket of quarterly results that were nothing short of superb. This speaks a lot to the AI valuation concerns.

And as valuations retreat and a correction plays out (perhaps with some folks selling with the fear we’re in a bubble that’s bursting as we speak), I do think that we may actually avoid that bubble-burst scenario. I’d much rather be invested in a market that experiences a normal, natural correction every couple of quarters than one that goes into overdrive, running parabolic, only to crash and implode in devastating fashion later on. Perhaps the AI bubble buzz is preventing one from happening in its tracks? Time will tell. Either way, I think AI investors should pay more attention to individual names.

AI bubbles might not be as widespread across tech

Post-earnings, Jensen Huang said, “From our vantage point, we see something very different” when the possibility of an AI bubble was brought up. Arguably, there’s no better vantage point than where Jensen is standing. As such, perhaps investors shouldn’t overreact to all the overly fearful AI bubble commentary that’s floating out there.

There are bound to be individual bubbles co-existing with opportunities. The key for investors might be to identify the attractively valued opportunities while steering clear of overvaluation (think AI stocks with price-to-earnings (P/E) multiples above 50 times).

At this juncture, only one name in the Magnificent Seven fits the bill for having such a P/E, and that’s Tesla (NASDAQ:TSLA), which currently goes for 178 times forward price-to-earnings (P/E).

Of course, Optimus and Cybercab might unlock a magnitude of growth that allows Tesla stock to justify its currently seemingly high multiple, and that’d make Tesla stock a bargain rather than a bubble.

In any case, with Amazon (NASDAQ:AMZN), which also has a nice Zoox robotaxi and a nice runway in robotics, going for 28.1 times forward P/E after sliding after one of the best Mag Seven earnings of the third quarter, I think the e-commerce, cloud, and AI company is a relative bargain, as I’ve noted in previous pieces reflecting on the company’s latest Q3 result.

Still, unless you’re chasing smaller-cap AI companies with no earnings at all, the AI bubble might not be as ruinous as the dot-com bust from 25 years ago, especially for investors who pick their spots carefully.

In short, Nvidia’s latest numbers put the AI bubble fears to rest for less than a day. Perhaps we’ll have to wait a while longer before we get a quarter that pops the potential bubble of AI bubble fears.