2024-03-10 16:03:00
It is likely that there is no person who has not heard the name NVIDIA COR -5.55% Closing: 0 Opening: 951 High: 974 Low: 865.06 Cycle:– Page Quote News Graphs Company Profile Recommendations Additional articles on the subject: , and certainly during the last year and a half to two years . The stock of the company that is considered the queen of the AI industry has risen by 281% in the last 12 months and has added an insane amount of $1.5 trillion to its value, and it is even approaching Apple APPLE +1.02% Close:0 Open:169 High:173.7 Low:168.94 Turnaround: — to the page quote news graphs company profile recommendations additional articles on the subject: its weight in the S&P 500 index.
This astronomical increase is impressive, but it raises concerns that a bubble is forming here that may burst, a concern that is starting to take a bigger place in many traders’ thoughts about the market as a whole. On Friday, Nvidia again opened the trade with impressive gains, this time up to 5%, but it closed the trade precisely at minus 5%, while on the way it wipes out a value of over 50 billion dollars – this is more than any Spotify share SPOTIFY TECHNOLOGY -4.05% Closing:0 Opening :269.5 High:272.44 Low:259.24 Cycle:– Page Quote News Graphs Company Profile Recommendations Additional articles on the subject: For illustration.
The question is then, did we get a glimpse here of what Nvidia and the entire market is going to go through soon?
The multipliers have gone down, but they are still high
Many analysts point to the fact that Nvidia’s future earnings multiple has fallen when compared to the possibility that the stock is inflated. Nvidia’s future profit multiplier did indeed decrease in the last year, from 60 to 34, this is of course a result of the meteoric rise in the company’s financial results as well.
This may be a bit reassuring, but at some point the market will probably start to doubt Nvidia’s ability to maintain growth rates that would justify such multiples over time. Although other companies such as Tesla TESLA INC -1.85% Close:0 Open:181.5 High:182.73 Low:174.7 Cycle:– Page Quote News Graphs Company Profile Recommendations More articles on the subject: or Amazon AMAZON -0.83% Close:0 Open:176.31 High :178.78 Low:174.33 Turnover:– to page quote news graphs company profile recommendations additional articles on the subject: are traded at higher multiples (58 and 41 respectively), there is still no precedent for a company with a value of over 2.2 trillion dollars that has maintained such a high multiple over time .
In fact, if you look at the graph, you see that the stock continues a trend line that has lasted for more than 6 years, which perhaps indicates that a large part of the increases are attributed to the fact that investors are buying Nvidia because it is the popular stock, a kind of “don’t replace a winning horse”.
Momentum shares
This trend of “buying what works” extends far beyond the chip field or even the technology sector. Such a strategy seemingly embodies low risk and requires little thinking, relying on the wisdom of the masses which sometimes also becomes a self-fulfilling prophecy, and there are such stocks in almost every field.
In the retail sector, for example, this is COSTCO WHOLESALE -7.64% Close:0 Open:756 High:756.05 Low:725.16 Turnover:– Page Quote News Graphs Company profile Recommendations Additional articles on the subject: , in pharma this is Eli Lilly ELI LILLY & COMPANY -2.34% Close :0 Opening:780.16 High:780.16 Low:755 Cycle:– Page Quote News Graphs Company Profile Recommendations More articles on the subject: And you can find more examples from other fields. Such “momentum stocks” are responsible for over 50% of the movement of the S&P 500 index, which is also breaking record after record and raising fears of a fall.
The increases are probably also influenced by the macro environment, which, although it has not yet seen interest rate cuts from the Fed, definitely feels the impending release, especially in light of the statements of Governor Powell who has already stated that the interest rate increases are over, although he continues to avoid giving a clear time frame for the reductions. As you remember, the Fed said it expects 3 interest rate cuts in 2024.
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