WSJ (“Nvidia Becomes First $5 Trillion Company“):
Nvidia became the first company to hit $5 trillion in market value, the latest milestone in an unprecedented surge that reflects the growing influence of artificial intelligence on markets and the economy.
The chip maker’s shares recently topped $210, ahead of the $205.76 needed for a $5 trillion valuation. The stock has been boosted by exuberance for AI’s potential and a recent flurry of deals and partnerships with some of the biggest companies in AI and corporate America, from OpenAI and Oracle to Nokia and drugmaker Eli Lilly. Enthusiasm for Chief Executive Officer Jensen Huang’s speech in Washington, D.C., also helped fuel gains this week.
Nvidia is now larger than AMD, ASML, Broadcom, Intel, Lam Research, Micron, Qualcomm and Taiwan Semiconductor Manufacturing combined, according to Dow Jones Market Data. Its value also exceeds entire sectors of the S&P 500, including utilities, industrials and consumer staples.
That the company that came to prominence making gaming chips and is now at the center of the AI boom is valuable is not surprising. That it’s more than so many blue chip companies combined, though, is. Especially consider how rapid its rise has been:
Its value held essentially flat at $1 trillion for years, hitting $2 trillion six months ago. And it has simply exploded since.
Naturally, this has people wondering how sustainable it all is.
Some investors, technology executives and industry analysts have begun to raise the prospect of an AI bubble akin to the dot-com boom and bust. Technology companies are pouring hundreds of billions into data center development and chips and taking on heavy debt, but current revenue is relatively tiny.
The “remarkable valuation” sets high expectations for the company, said David Kotok, co-founder of Cumberland Advisors. “It is justified only if margins and profits continue on the current trajectory or even get better.”
Indeed, Nvidia’s valuation is among the most elevated in the equities market. The stock had a price-to-earnings ratio of about 33 as of Wednesday morning, based on next year’s projected earnings, compared with an average of about 24 for the S&P 500.
The chip maker still trails some of the more eye-watering valuations of its tech industry peers: Tesla is trading at more than 210 times next year’s earnings. Palantir’s price-to-earnings ratio is even higher.
This, too, is interesting:
Nvidia in September agreed to invest up to $100 billion in ChatGPT maker OpenAI, which would allow the startup to build and deploy at least 10 gigawatts of Nvidia systems for its AI data centers. Nvidia has also backed a host of AI startups. If heavy spending on the AI race wanes, some worry that Nvidia could be hit twice, with less revenue and declining value of its equity investments in customers.
This is the opposite of diversification.
