to resemble the California gold rush; only now are companies, not individuals,
chasing the new El Dorado. Representatives of all industries seem determined to
incorporate the latest technology into their operations to increase
productivity and reduce costs.
Merchants find themselves in a situation similar to that of
150 years ago: everything is going well. However, now the winners are not the
sellers of shovels, cowboys, tents, etc., but the chip vendors. NVIDIA stock has conquered the top of Olympus and, like
„Envidia“ in Spanish, has become the envy of many competitors.
It has surpassed Microsoft in market capitalization for the
first time, making it the world’s most valuable company. Notably, it took
NVIDIA 24 years to reach a market capitalization of $1 trillion, 180 trading
days to double to $2 trillion, and only 66 more to reach $3 trillion. At this
rate, the company could soon surpass the $4 trillion mark….
Keep in mind that NVIDIA’s current market capitalization is
$3.3 trillion, and revenue was $61 billion last year. Expected P/E is 27.6x,
and P/E is 49.6x. From this perspective, earnings per share (EPS) will take
about 49.6 years to equal its price to the current P/E. Thus, betting on the
stock is not very cheap. In contrast, the S&P 500 index is 21 times
earnings.
The Wall Street Journal notes that the last time a major IT
infrastructure vendor topped the list of most valuable U.S. companies was in
March 2000, suggesting parallels with the dot-com crisis. However, analysts
believe this time will be different, calling NVIDIA’s revolutionary chips the
century’s most important invention.
The only thing is that while some $50 billion has been
invested in Nvidia’s chips since the boom began, generative AI startups have
only brought in $3 billion in sales. So it will be a while before the extremely
optimistic expectations materialize on paper or, rather, on the companies‘
balance sheets.
As for what to expect next, as long as the stock market is
bullish and optimistic about the future, the AI bonanza and love for tech
stocks, especially the leading ones, may persist. However, the riskiest and
most expensive stocks could undergo a significant correction once the mood
changes. The question is not if it will happen but when.
To determine the latter, it is advisable to monitor macroeconomic indicators, as they indicate the
general state of the economy, forecast future consumer demand, etc. On the one
hand, a fall in the exchange rate may force the Fed to lower interest rates,
but on the other hand, demand for specific goods and services may fall.
This article was written by FL Contributors at www.forexlive.com.