NVIDIA Corporation (NASDAQ:NVDA): The Most Overvalued AI Stock in 2024?

We recently published a list of the Top 10 Overbought AI Stocks in 2024. Since NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look.

The second half of 2024 is here and rate cuts from the Federal Reserve remain elusive, with warnings about valuations and AI-led market hype growing louder. A number of notable Wall Street analysts have recently warned that the markets remains more concentrated than ever where just a few stocks account for most of the gains, thanks to their dominance in the AI industry. Many also believe the market is up for a correction as it has entered the overbought territory. Financial services company BTIG recently said in a report that the world’s fifth-largest exchange-traded fund by assets under management (AUM), QQQ Trust Series 1, now trades “well into” overbought territory based on its Relative Strength Index technical indicator.  QQQ tracks  the Nasdaq-100 Index and it’s not surprising to see the ETF showing signs of being overbought as more and more investors pile into mega-cap tech stocks in order to ride the AI bandwagon.

For this article we scanned the holdings of the Invesco QQQ Trust Series 1 ETF and picked top technology holdings of the fund with higher Relative Strength Index (RSI) values. Usually, an RSI value of 60 and above shows a stock is overbought. We have also mentioned the number of hedge fund investors with these stocks. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A close-up of a colorful high-end graphics card being plugged in to a gaming computer.

Nvidia Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 186

Nvidia Corp (NASDAQ:NVDA) shares have an RSI of over 70, indicating the stock is overbought. It’s the second-biggest holding of the QQQ ETF, which has entered the overbought territory according to BTIG.

However, many believe NVDA has more upside potential.

UBS believes Nvidia Corp (NASDAQ:NVDA) is well-positioned to benefit from the $331 billion market opportunity in the AI Enabling layer, thanks to its GPUs. In the Cloud segment of the Enabling layer, UBS thinks Nvidia Corp’s (NASDAQ:NVDA) DGX offering makes the company a promising player. Nvidia Corp (NASDAQ:NVDA) DGX Cloud is a supercomputing service that gives enterprises access to software and infrastructure required to train advanced models for generative AI. It’s a combination of servers and workstations for optimizing deep learning applications through the use of general-purpose computing on graphics processing units (GPGPU).

On the Intelligence and Application layer of the AI value chain, UBS sees no notable catalyst for Nvidia Corp (NASDAQ:NVDA).

NVIDIA Corp’s (NASDAQ:NVDA) latest product announcements and its plans revealed at the Computex 2024 show that NVIDIA Corp (NASDAQ:NVDA) has much more in its arsenal to power its growth engine. Analysts like NVIDIA Corp’s (NASDAQ:NVDA) shift to new AI architecture known as Rubin (R100) and think its powerful H100 and Blackwell chips easily beat competitors.

RiverPark Large Growth Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2024 investor letter:

“NVIDIA Corporation (NASDAQ:NVDA): NVDA shares were our top contributor in the quarter following blowout 4Q results and 1Q guidance driven by strong data center sales. The company reported quarterly revenue of $22.1 billion, up 265% year-over-year, and EPS in the quarter of $5.16, up 487% year-over-year and 12% ahead of expectations. Revenue guidance for 1Q of $24 billion was 8% above very high expectations. The artificial intelligence arms race kicked-off by ChatGPT and Alphabet’s Bard, among others, has generated tremendous demand for Nvidia’s next generation graphic processors.

NVDA is the leading designer of graphics processing units (GPU’s) required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming-focused chip vendor to one of the largest semiconductor/software vendors in the world. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. Following recent results, Jensen Huang, founder and CEO of NVIDIA stated in the company’s press release, “a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”

Overall, NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list titled Top 10 Overbought AI Stocks in 2024. While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA Corporation (NASDAQ:NVDA) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.