📈 Nvidia-a-a-a-a-a-a
Boom or bubble?
Nvidia burst through the $3 trillion barrier yesterday. The chipmaker’s stock is responsible for a third of the gain in the S&P 500 market this year.
It is worth more than Apple, but looking at fundamentals, it is treated very differently.
Apple has more than 7 times the revenues and about 4 times the profits of Nvidia. Apple of course is not growing. Investors are betting heavily that Nvidia’s revenues will continue to grow.
Is this a bubble? Technology markets are prone to exuberance and bubbles. And stock prices can depart from fundamentals. One analysis from BofA, below, suggests that, unlike the dotcom bust, that divergence hasn’t yet happened.
On the other hand, if we go back to the 1840s railway mania in Britain, the equivalent of 5-7% of GDP was invested in the nascent technology annually, much of it wasted.
That 5-7% of GDP today would be roughly $1.1 to 1.5 trillion dollars in the US per annum. In the last 12 months, Nvidia has added $1.2 trillion to its market cap.
Earlier this week, in the frenzy around the firm, the company’s boss, Jensen Huang, was spotted signing an avid fan’s top. Not sure if there was an equivalent during Railway mania.
What to make of it?
Nvidia has picked up the pace. The firm introduced Rubin, a new series of data centre chips, replacing the Blackwell, which was only announced in March. This is a new clock speed for the chip industry.
In the first quarter of this year, data centre chips accounted for $22.56bn in revenues. In the whole of FY24, that business was $47bn. It’s obvious AI is driving the growth— UBS reckons that one company, most likely Microsoft, accounted for 19% of the firm’s revenues.
Based on my conversations with execs, I don’t see demand for AI apps slowing down at all. Mostly, I hear, “We are starting, pleased with the results and eager to do more.” Apple is yet to roll out AI widely to its user base; much of this will happen on the device, but some will happen in data centres. And we shouldn’t rule out the biggest AI firms' plans to spend billions (and more) on chips for new frontier models.
At the same time, such a juicy market will flesh out competitors, including AMD, ARM, and others. Businesses will want greater efficiencies as costs start to mount up. Markets don’t stay bullish forever.
So, bearing in mind that nothing here is financial advice, curious to hear your view. Is Nvidia a buy or not?
The time to buy NVDA was 12-24 months ago. The valuation is totally unsustainable and this has massive bubble written all over it
Buy Nvidia? Depends on what is already in your portfolio. However, consider: Huang has understood 21 Century computing for at least 30 years. He is getting physical because he understands that the Word was not the beginning. He will go after the edge and robotics. He is rethinking the datacenter and the laptop, Others will make some progress, but it will be on the margins. He knows his business is not selling chips to LM vendors. LMs delight me to no end, but they are a tiny step. Nvidia knows that so, repeating myself for emphasis. Physical. Robots. Edge. AI factories.