Nvidia’s Valuation Approaches $2T. Is There a Bubble Around Nvidia and AI Stocks?
Attempt at an answer.
Does the name Jensen Huang ring a bell?
Yes? No?
It should be if you're interested in investment and Tech.
Indeed, Jensen Huang is the boss of Nvidia. Nvidia has been racking up record after record on the stock market for several months, to the point where it is now the fourth most valuable company in the world after Microsoft, Apple and Saudi Aramco:
At the rate things are going, you can even expect Nvidia to quickly overtake Saudi Aramco by surpassing $2T in valuation.
For Jensen Huang, artificial intelligence is a “whole new industry”.
Jensen Huang knows what he's talking about, as Nvidia shares rose another 15% this week on the announcement of spectacular results.
Which brings us back to the same question:
Is Nvidia at the heart of a gigantic bubble?
Nvidia's figures make the head spin.
In addition to the record stock market figures that Nvidia has been racking up, there are also record sales figures. The power of the Nvidia effect is such that stock market indices in the United States and other major economies are soaring.
Nvidia's share price has more than quadrupled since the end of December 2022.
But Nvidia isn't the only one to benefit from this artificial intelligence euphoria, as Microsoft's share price is also soaring. Other tech giants are also benefiting.
Beyond these Tech giants, a myriad of listed companies, both well-known and unknown, are seeing billions of dollars poured in by millions of private and institutional investors.
For his part, Jensen Huang is convinced that artificial intelligence has reached its “tipping point”.
For Jensen Huang, there's no bull around Nvidia, but a recognition by investors of the strength of this new industrial revolution, which is still in its infancy in terms of use.
Just imagine that Nvidia passed the 1,000 billion mark in June 2023. Barely 8 months later, Nvidia is on the verge of surpassing $2,000 billion in valuation. This is a truly fantastic ride for one of the most successful representatives of what is now known as the Magnificent Seven.
Nvidia's sales for a single quarter amounted to $22.1 billion, with a profit of $12.29 billion. That's ten times more than a year ago!
Microsoft's valuation exceeds $3,000 billion. The figures are dizzying.
So, bubble or no bubble?
There's no doubt in my mind that artificial intelligence is a major new industrial revolution, the impact of which on the economy is not yet fully understood. There's no doubt that industry leaders will benefit greatly from this revolution.
But are these companies overvalued?
As long as we have sales and earnings growth as crazy as Nvidia's, even the craziest valuations will seem reasonable.
No doubt there will be corrections along the way. No doubt there will be an AI crash at some point in the future.
This is to be expected, as we've seen the same kind of phenomenon with every industrial revolution.
First a frenzy, then a purge, and then, as with the Internet, a healthier, more sustainable progression. But hardly anyone wants to be the first to take a bear position on these stocks...
Remember that Alan Greenspan declared that there was “irrational exuberance” as early as December 1996, but that the Internet bubble didn't burst until... March 2000.
If there is a bubble around Nvidia and artificial intelligence valuations, it could well continue to inflate for some time yet, before the purge takes place...
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