Amazon (AMZN -0.56%) and Nvidia (NVDA -1.41%) are flying high. The share price of each company has skyrocketed by more than 50% and 180%, respectively.

Those massive gains have also pushed the stocks' valuations into the stratosphere as well. Amazon's shares trade at a forward price-to-earnings ratio of 73.5x. Nvidia's forward earnings multiple tops 56.8x. But are Amazon and Nvidia stocks really as absurdly overvalued as they appear?

What Wall Street thinks

Wall Street doesn't seem to think that either of these stocks is priced too highly right now. Instead, analysts believe that both Amazon and Nvidia have more room to run after their huge gains.

The consensus 12-month price target for Amazon reflects an upside potential of more than 6%. Granted, that's not a breathtakingly bullish level. However, it indicates that many on Wall Street aren't concerned about Amazon's valuation.

Indeed, 15 of the 47 analysts surveyed by Refinitiv in June rate Amazon as a strong buy. Another 28 analysts recommend buying the stock. Only three analysts advise holding the stock, with one rating it as an "underperform."

The story for Nvidia is a little more complicated. The average price target for the stock is nearly 15% higher than the current share price. One analyst even predicts that Nvidia's shares could soar another 74% over the next 12 months.

However, there isn't nearly as much of a consensus on Wall Street with Nvidia as there is with Amazon. Of the 38 analysts surveyed by Refinitiv in June, 21 rate the stock as either a buy or a strong buy. Another 15 recommend holding the stock with one analyst rating Nvidia as an "underperform" and another recommending selling. 

Second opinions

Not everyone agrees with Wall Street's enthusiasm about Amazon and Nvidia. That's especially the case with the latter stock.

There's probably no better valuation expert on the planet than Aswath Damodaran. He's a professor of finance at New York University's Stern School of Business. Damodaran has written multiple books on determining the valuation of equities.

So what does Damodaran think about Nvidia? He recently tweeted that he owns the stock. However, after crunching the numbers, the valuation expert believes that even with the company's revenue soaring 10x and operating margins of around 40%, the stock is really worth closer to $240 rather than over $400. 

Damodaran hasn't commented recently about Amazon's valuation. Others have, though. For example, the team at Alphaspread, which operates a stock valuation platform, performed a discounted cash flow (DCF) analysis on Amazon. The conclusion was that the stock is actually worth roughly half of its current price. 

A more nuanced answer

When Damodaran determines that a stock is overvalued, I believe him. However, he did tweet that there is a scenario where Nvidia could be worth more than $400 but that scenario is "unlikely." 

I agree with that analysis. Could Nvidia's shares continue to rise? Sure. Stocks can remain overvalued for long periods of time. Could Nvidia be worth a lot more 10 years from now? Again, it's quite possible. The AI market could explode in a bigger way than anyone expects.

As for Amazon, I don't think the stock is absurdly overpriced right now. For one thing, earnings-based valuation metrics have always been next to useless with the stock. Amazon has historically funneled so much money into growth that its earnings didn't reveal the full story. DCF models can also be unreliable because of the difficulty in accurately forecasting Amazon's growth.

My personal view is that the company's Amazon Web Services cloud business could deliver enough growth over the next decade that the stock could look cheap in retrospect at its current price. I also fully expect Amazon to generate much higher free cash flow going forward as a result of its cost-cutting initiatives.

Sometimes stocks that appear to be overpriced actually are. But other times, the premium valuations are justified. I suspect we're seeing examples of both scenarios with Amazon and Nvidia.