NVDA - Is this a bubble?

 

There has been a lot of ink spilled on NVDA which is not worth going over. Money has been made by a lot of investors who know nothing about the chip market but have followed the bandwagon over the last year. The earnings release was explosive and the react was consistent with an exceptional report, yet the key question is always the same. What will happen next?

Whenever there are market extremes, there is a word that often thrown around which sends chills up the spine of many investors - bubble. Is the gain in NVDA, a bubble? 

There is now a few that any extreme market move should be called a bubble, yet this is simplistic. A new technology, an innovation, a positive outlook, a supply problem, or host of other reasons can create a large increase in return over a short time horizon. Similarly, a change in the fundamentals or a reassessment of the fundamentals will create conditions that may reverse the increase. The bubble could be popped. Yet, this may only represent a change in market conditions. It can be seen as extremes, but does this constitute a bubble? Does a large change in a short period represent a bubble?

If the answer is that extreme prices are driven by fundamentals, then there is not a strong reason to see a decline in NVDA until we have evidence of a market reversal. 

Recent research on market extremes suggests that crashes are not guaranteed after a strong run-up. See "Bubbles for Fama". Be careful with assuming that all bubbles will lead to a strong crash.