Nvidia's unstoppable upward trend is currently attracting more and more stock market participants and driving the S&P 500 index to continuously reach new highs. And this scene inevitably reminds people of another former market darling - it once soared due to the dream of technological change, but when these hopes turned into disappointment, the speed of falling was equally astonishing!
This stock is Tesla.
At that time, the market value of this Musk owned electric vehicle giant far exceeded the sum of established American car manufacturers such as General Motors and Ford, becoming the world's highest value car manufacturer and sparking a phenomenal buying frenzy in the US stock market. Many analysts have even turned their "message" to Tesla beyond the automotive industry, stating that it has the potential to become the "next Apple company.".
However, Tesla's stock price has fallen by more than 50% compared to its peak in 2021, and other electric vehicle tycoons who have risen in sync with it in the past have now fallen beyond recognition.
All of this may be worth alerting investors who see Nvidia as an unlimited bet on the future of artificial intelligence - Nvidia's stock price has more than doubled in 2023, leading the US stock market up again this year, with a cumulative increase of 66%.
This is not to say that the current AI wave and Nvidia's share price, which plays a key role as "shovel seller", must be a foam. But at certain times, market frenzy can be irrational. As Adam Sarhan, founder and CEO of 50 Park Investments, said in a recent interview, "We have seen time and time again that when investors fall in love with the current concept of technological innovation, logic takes a back seat. And when emotions prevail, people think the sky is the limit."
NVIDIA and Tesla
Undoubtedly, there are many differences between Nvidia and Tesla in terms of their own business and the personalities of the people who manage these two companies. But in the financial market, the similarities between the two are also very obvious.
Nvidia has risen from an initially mediocre niche chip manufacturer to one of the world's largest companies by market value, based on the enduring power of its astonishing sales growth over the past year. Tesla also experienced a major explosion in 2020, with its peak valuation exceeding $1.2 trillion. At that time, people believed that electric vehicles would quickly become widely popular - the company led by Musk would become the dominant giant in the market.
But reality has largely disrupted this hypothesis.
The demand for electric vehicles is slowing down as the first batch of enthusiastic consumers have already purchased electric vehicles, while those who are more price conscious and resistant to change also take longer than expected to switch to new technologies. Therefore, Tesla's stock price has fallen by 31% from its recent high in July last year and has become one of the companies with the largest decline in the Nasdaq 100 index this year.
Autonomous cars and Cyberracks currently have infinite potential, but their stock prices have been hit. Why? They are losing market share and profit margins. Sameer Bhasin, the head of Value Point Capital, said, "In the tech world, this is a kiss of death.".
For Nvidia, although its stock price has been continuously rising for over a year now, it can only be considered as an early stage of the AI hype cycle, and there is no sign of any slowdown yet. This Silicon Valley based company has delivered impressive results for four consecutive quarters, and its chips for training large language models seem to be driven by endless demand, which provides power for AIGC applications such as ChatGPT in OpenAI.
After more than doubling its stock price last year, Nvidia once again became the best performing component of the S&P 500 index in 2024, with a 66% increase. Nvidia's market value exceeded $2 trillion last month, with only two American companies remaining above it - Microsoft and Apple. After announcing its explosive fourth quarter results on February 21st, this chip manufacturer's market value increased by nearly $280 billion within two trading days. Meanwhile, Nvidia's market value rose from $1 trillion to $2 trillion in just 180 trading days, while both Apple and Microsoft took over 500 trading days to reach this milestone.
During this process, Nvidia has become one of the most popular stocks for intraday investors. According to FactSet data, out of 59 Wall Street analysts who rated the stock, as many as 54 analysts rated it as buy or over allotment.
This popularity in the market, which was at its peak, was also achieved by Tesla three years ago. The real mystery at present undoubtedly lies in whether Nvidia will follow Tesla's footsteps?
Nvidia's Future Destiny
In fact, despite the similarities between Nvidia and Tesla, the discussion on the wide application of AI in all walks of life will inevitably remind people of the lively scene in the years before the Internet foam at the turn of the century. But different from that era, the Internet companies at that time were valued by new indicators such as "clicks", and were still losing money. But according to industry compiled data, Nvidia's net revenue increased by over 500% last year, reaching nearly $30 billion, and is expected to double this year.
These huge profits and sales, combined with the company's ability to consistently exceed expectations, have actually to some extent suppressed valuation indicators. However, despite this, Nvidia's price to sales ratio remains the highest among S&P 500 index constituent stocks - reaching 18 times.
At present, this semiconductor manufacturer has a significant leading advantage in the GPU field, which excels in handling computing power in AI models. But its competitors are also eager to get a share of this market. AMD has recently released a series of competing products, and even Nvidia customers such as Microsoft are competing to develop chips.
Some industry insiders have begun to worry that large technology companies may not be able to maintain their demand for chips in the coming years. Others are concerned that the addition of other chip manufacturers will create new competition, leading to a decrease in Nvidia's sales or profit margins.
"I think people are forgetting that this (NVIDIA) has actually been a company that has experienced multiple ups and downs in history," said Fred Hickey, editor of the industry publication High Tech Strategy. He pointed out that he is short NVIDIA through the long-term put option he bought after last month's financial report meeting.
According to data from the Dow Jones market, Nvidia's stock price has experienced 14 times since its listing in 1999, with a drop of 50% or more in different situations. The last two were a sharp drop of 56% in the two months of 2018, and another halving in the eight months ending in 2022.
Sameer Bhasin, the head of Value Point Capital, said, "If you really believe in this wave of artificial intelligence, you may have to imagine that in 10 years, artificial intelligence will be embedded in many places, and the chips that provide computing power for these AI systems will only be provided by Nvidia - even if there is only a slight sense of order suspension, Nvidia's stock price will also be affected."
This is not to directly negate the disruptive power of electric vehicles or artificial intelligence. But this does raise a question - are investors currently paying for future growth that may never come?
Take Cisco Systems, the market darling of the Internet era, for example: it is still a successful company, but investors who buy and hold this stock at the peak have not yet "unraveled" 24 years later.
Cole Wilcox, CEO and portfolio manager of Longboard Asset Management, said: "The foam exists because the logic behind it is real. But just because the macro wave is real, does not mean that all these enterprises will become good investment projects. You must be able to distinguish winners from losers."