When I look at the Nvidia (NASDAQ: NVDA) stock price, mere numbers don’t seem sufficient. The market-cap is now around $3trn. But since its peak a month ago, the value of the company has fallen by around $460bn.
To put it into perspective, that’s almost twice the market-cap of AstraZeneca, the UK’s biggest listed company. And that’s just the size of the price fall.
When ‘an AstraZeneca’ is becoming a useful unit of measure for rating share price movements, I do have to wonder if the stock market has actually gone mad.
The bullish view
It’s all about the expected demand for artificial intelligence (AI), of course. Nvidia makes the chips that are driving the AI revolution, and that should mean a big slice of a very big pie. But just how big might the pie be?
If we listen to the bulls, the global value of the AI market should grow 35% in 2024, to reach $184bn. And by 2030, it could reach $827bn, about six times the 2023 figure.
Putting a current value on what that could mean for Nvidia is tricky. But at the moment, we’re looking at a price to sales ratio (PSR) of 40. Apple‘s comes in at 9.6, while Microsoft‘s is up at 14. The Nasdaq average is about 5.3.
Even with a six-fold rise in revenue, the Nvidia PSR would still be above average for the tech stock index. But, if the bull case for AI growth turns out to be right, that could be good value.
What the bears think
Not everyone is quite so upbeat though. A recent report from Goldman Sachs suggests that AI might not be quite as game changing as the headlines suggest. And that investing big into AI stocks at today’s prices might disappoint.
Economist Daron Acemoglu told Goldman Sachs he thinks AI will only add around 1% to the US economy in the next 10 years. Goldman Sachs itself suggests a 6% GDP growth figure.
People are talking about firms ploughing $1trn into AI development in the next few years. Even bullish guesses suggest it could take some time to recoup that in profits.
Do you know what this all reminds me of? Yes, the internet revolution, and the dot com bubble that it created. I lived, and invested, through it.
Bubble?
Everyone claimed the internet would revolutionise the way we do everything, bring huge cost savings, and generate vast amounts of revenue.
They were right. But that didn’t stop high-flying stocks from crashing painfully when the early bubble burst.
Some did go on to reward their shareholders many times over. And while I avoided the pain by not putting a single penny into tech stocks, I missed the big winners like Amazon.com.
So will Nvidia be the next Amazon? I don’t know. But I do know that even Amazon fell heavily from its early peaks before really hitting the growth trail.
