Previously titled "Is Nvidia a Bubble?"
This market resolves Yes if NVDA at any point in the next five years drops below 70% of its current valuation. As of posting (before the market opens on 3/8/24) its price is sitting at $926.69. For rounding purposes, I'll define below 70% as below $650. If it trades below this level before 3/8/29 this market resolves Yes.
Stock splits will not affect this. In the case that NVDA splits its price I will adjust the market criteria to reflect the price that represents the 70% valuation.
Big thanks to @Uaaar33 and @AndrewHebb on the feedback. I've changed the name of this market to more accurately describe the resolution criteria (which I've left unchanged) and have added a market that more accurately reflects the title question.
Folks should be careful to read the resolution criteria. I really don't consider a volatile single stock touching a point 30% below its current price in the next 5 years indicative that it was in a bubble -- it's indeed more likely than not.
@Uaaar33 The 30% drop is largely an arbitrary choice. Nobody debates that a bubble popped in the US housing market between 2006 and 2008, and that corresponded with around a 20% decline in home prices according to the Economist. However, the dot com bubble was around a 75% drop in the NASDAQ.
Maybe in retrospect I should have set a bar right in between these (like 45%), but having been through 2022, a 30% drop definitely feels like popping. NVDA may drop in a non-bubbly way (ie it declines gradually over this time)... but once again I don't have a clear definition of bubble so I opted for an easily verified criteria.
@VerySeriousPoster Many people, including many economists, doubt that a bubble popped in the US housing market because, among other reasons, prices are now higher than they were at the bubble's peak.
@VerySeriousPoster Right, but housing is not considered a highly volatile asset. VNQ for instance has around 21% annualized volatility. NVDA is 45% to 50%.
Bubbles are intended to imply irrationality, but NVDA (as indicated by the options market) is a hard to value stock (due to it being hard to value future cash flows). A 30% drop is within a standard deviation, so I don't feel like NVDA falling 30% is indicative of irrationality - just the future working out in the range we know is "plausible" today.
I think 45% would make more sense for a "bubble' cutoff; I'd personally put it at 55%+.
@Uaaar33 Ah, I didn't consider the volatility component. Yeah, you're right, I should have set the bar higher than thirty percent. I don't want to change it now given the number of positions that have been opened according to my stated criteria, but I definitely appreciate the correction (pun intended) since I can at least avoid the same mistake in the future.
Edit: actually now that I think about it, I could just change the title and make a new market with the correct criteria
@AndrewHebb I wasn't aware of that. Do you have anything that you'd recommend reading to get a better understanding?
What if they drop in response to geopolitics? What if Taiwan gets blockaded?
@DavidFWatson That's an interesting point, but I don't think I'll make a cutout to the resolution criteria. If a geopolitical crisis crashes the stock price, that means the chance of a geopolitical crisis was undervalued. If China invades Taiwan in 2026 and NVDA craters, it means that traders today are being far too bullish.
While this potential overvaluation smells different than the traditional idea of a bubble (like pets.com being overvalued in the dot com boom), I think the underlying causes are the same: fomo and hopium.
That and I have no idea how to account for the reasons for a stock cratering: going off the objective stock price makes for a much cleaner resolution.