Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) stocks have moved in different directions of late. Tesla has spiked upwards 40% since Elon Musk’s big buddy Donald Trump won the US presidential election. Reports that the new administration plans regulations to advance self-driving vehicles helped. It could be a nice boost for Tesla’s robotaxi.
Meanwhile, Nvidia lost a bit of ground even though Q3 earnings beat expectations. Revenue was up 94% year on year as CEO Jensen Huang said: “The age of AI is in full steam, propelling a global shift to Nvidia computing.”
Trigger for a fall?
Nasdaq growth stocks tend to be volatile, with a lot of big swings along the way, and a slowdown in growth can often be a trigger for a fall.
Most companies can only dream of Nvidia’s 94% revenue growth. But gains in the previous three quarters had been above 200% year on year. And Q4 forecasts suggest a slowing to 70%.
That seems natural after an initial demand surge becomes partly satisfied and starts to ease off. But if growth at Nvidia really does keep on slowing, the bulls could depart and hunt for the next story stock.
So it might make sense to consider selling and taking profit now. And that’s what some investors have done.
Supercomputer demand
Then again, a recent report by Forbes showed just how much demand there could be, as Nvidia’s Blackwell chips are about to hit the market.
According to the Wall Street Journal, the computer super clusters being built by artificial intelligence (AI) service providers “contain unprecedented numbers of Nvidia’s most advanced chips“.
The Colossus supercomputer built by Elon Musk’s xAI could be set for expansion to use 300,000 of the new Blackwell chips by next summer.
At $30,000 apiece (and that would be a big bulk discount on the price smaller customers would have to pay), that could give Nvidia a $9bn revenue boost.
Tesla demand
Tesla’s also a major user of AI chips. And it might be back on track for growth after beating earnings estimates by 20% in the third quarter. The previous three quarters had seen earnings per share (EPS) fall short of analyst forecasts.
Tesla’s vehicle deliveries did fall slightly short of hopes in Q3, but only by around 1,300 vehicles out of 462,000. It’s still a 6% rise over Q2, and well ahead of the same quarter of 2023.
It’s more than just a car maker too. Battery development, charging, infrastructure… first movers can build defensive moats.
What was the question again?
However, pointing to the US stock market’s focus on such a small group of companies, the European Central Bank just warned: “This concentration among a few large firms raises concerns over the possibility of an AI-related asset price bubble“.
But then Goldman Sachs says valuations are justified, based on profitability and growth outlook.
With all this uncertainty, I’m not buying either just yet. But I think Nvidia could still be fair value on a forward price-to-earnings (P/E) ratio of 48. Tesla’s multiple of 162’s just too much for me to swallow.
Now, if we do see a bubble burst…
