What happened
Shares of semiconductor-specialist Nvidia (NVDA 3.71%) are fluttering around a bit in Tuesday trading. After jumping higher at the open, Nvidia stock quickly gave up its gains and headed lower, hitting a 2.3% loss as of 10:30 a.m. ET.
So what
Why did Nvidia pop, and why is it now dropping? I fear the answer is one and the same: According to a CNBC report, which spied the stock accelerating in pre-market trading, the only reason Nvidia shares were going up this morning was because "chip stocks have been rising amid supply shortages and strong demand, leading to higher prices for chips."
But that's old news, to say the least, and not really a good reason for the stock to be going up today.
Image source: Getty Images.
Now what
In contrast, the reasons to think that Nvidia stock might start slowing down soon are pretty clear.
On the one hand, yes, Nvidia's business is going great guns, with red-hot demand for computer chips for everything from cellphones to PCs to cars and trucks driving revenues up 50% in the most recent quarter. In addition, earnings rose 84%.
Growth rates like these are one reason Nvidia stock currently sports a valuation of 93 times earnings. And with analysts forecasting more than twice as much profit in 2022 than Nvidia earned in 2021, the company's stock might even continue to rise next year, as well.
Problems begin to set in, though, as investors start looking ahead to 2023, 2024, and 2025, when Nvidia's earnings growth is expected to slow into the high teens. Will investors still want to pay 93 times earnings then for a stock growing at 18% or 19%?
This is the question investors might be starting to wonder about today.
