This week, Nvidia briefly became the most valuable company in the world, with a market capitalisation of $3.33 trillion. On that day Microsoft was in second position at $3.31 trillion and Apple was in third position at $3.28 trillion.

• In October 2022, Nvidia was a worth $279 billion.

• In June 2023, Nvidia was worth $1 trillion.

• In March 2024, Nvidia was worth $2 trillion.

• In June 2024, Nvidia is worth $3.1 trillion.

That means close to $3 trillion of market cap has been added in about 20 months. That's a wild ride.

Is this bubble territory?

Nvidia has a price-to-earnings (P/E) ratio of 73.9, which is sky high compared to the S&P 500 index which has a P/E ratio of 24.8.

As you can imagine, people are concerned that Nvidia’s stock price is in a bubble that is about to burst. Whenever people are talking about bubbles, the dotcom comparisons of the early 2000s come out.

Let’s look at what people are saying

Here’s a comparison to Cisco systems in the early 2000s. The implication is that Nvidia will follow Cisco and promptly crash.

Here’s a graph from a trader who says that the price chart is becoming scary and that all similar charts eventually crash.

Here’s a meme about a guy who sold a 5% stake in Nvidia for $4 billion in 2019. Today that would have been worth about $165 billion. Poor guy! (sort of). Just goes to show that investing isn't easy.

Other comments you will hear on Nvidia include:

• Revenue growth over the past three years was 60% per annum – at that rate, they will outgrow their customers.

• Nvidia’s customers are competitors and have deep enough pockets to design their own chips.

Bullsh*t

I am calling all the above bullsh*t 💩.

These comments, memes and jokes are not at all helpful. All they do is scare you and create doubts about the company. That could lead you into making bad investment decisions.

In contrast, I think Nvidia is a great company. Not only that, I also don’t think it is too overvalued.

I’m not saying it can’t have a severe price correction, in fact, it probably will at some point. But the company is also delivering outstanding financial performance.

Nvidia is not an easy stock to own, it has had 80% price drops more than once in the past. It currently has a beta of 1.7. Beta is a measure of how much a company’s stock price moves in relation to the market. The market has a beta equal to 1. That means Nvidia’s stock prices moves up and down 70% more than the market.

Meet Nvidia

The only way to get through the fear and scaremongering about Nvidia is to start to understand it. So allow me to introduce you to Nvidia and the opportunity that it presents.

Let me start by busting a myth. Many people think that Nvidia makes microchips called GPUs. They do make chips, but they also do a lot more than that. Nvidia has created an accelerated computing platform. That means its products include both the hardware and software required for artificial intelligence.

Artificial intelligence is the next revolution in computing. Until now, even from the days before the internet, computing was about your computer retrieving data and doing calculations. Every existing software system is some version of that.

In future, the world of computing will be completely different. Artificial intelligence will be used to generate information and even entertainment for you. It will not just retrieve that data, it will make it.

At the moment, popular AI systems like ChatGPT are able to speak to you, answer your questions and maybe even write a poem for you. These systems can do a lot more than what I have mentioned, but if you are a specialist in an area, you will quickly notice their limitations. These systems cannot always produce deep insights. In future, that will change, computers will have PhD level understanding.

But that requires a lot of computing power. And although Nvidia’s current systems are extremely impressive, even these will not be enough in future. There is not a single field of human endeavour, from science to government, to health, to business and more that cannot benefit from AI.

Nvidia is well positioned to serve those industries.

A trillion dollar market opportunity

Nvidia sees a $trillion market opportunity for their products:

• $300 billion market for data center systems – this is the market for Nvidia’s GPUs which form the basis of their super-computing platform.

• $100 billion market for gaming hardware.

• $150 billion market for cloud solutions for business.

• $300 billion market for artificial intelligence robots and vehicles.

• $150 billion market for omniverse – the platform to design, build and operate virtual world simulations.

Conclusion

I think you’re getting the idea on why the market has been going crazy over Nvidia. The opportunity set is massive. So I want to swing back to the meme’s and fearmongering and highlight five investment lessons:

1. Keep your investment cool, while others are losing theirs.

2. Don’t let prices on a chart tell you how to invest. Nvidia is not going up because it is a bubble, it is going up because it has unlocked and is the leader in a trillion dollar market. That doesn’t mean it can't go down.

3. Don’t listen to the noise from other people. They make spurious statements and conclusions which can scare you away from investment opportunities.

4. Find out what the company really does. We all thought Nvidia make little GPU microchips, but in reality they have an entire hardware and software ecosystem, designed to keep customers locked into their technology.

5. Stock prices can be a rollercoaster. Even great companies can have stock prices that move like a rollercoaster. Nvidia has been down 80% more than once, so if you are an investor, be prepared for the ride (i.e. hang on while screaming).

I would like to hear what you’re up to.

DM me on social media or email me.