The excitement around artificial intelligence is beginning to resemble the California gold rush; only now are companies, not individuals, chasing the new El Dorado. Representatives of all industries seem determined to incorporate the latest technology into their operations to increase productivity and reduce costs.
Merchants find themselves in a situation similar to that of 150 years ago: everything is going well. However, now the winners are not the sellers of shovels, cowboys, tents, etc., but the chip vendors. NVIDIA stock has conquered the top of Olympus and, like "Envidia" in Spanish, has become the envy of many competitors.
It has surpassed Microsoft in market capitalization for the first time, making it the world's most valuable company. Notably, it took NVIDIA 24 years to reach a market capitalization of $1 trillion, 180 trading days to double to $2 trillion, and only 66 more to reach $3 trillion. At this rate, the company could soon surpass the $4 trillion mark....
Keep in mind that NVIDIA's current market capitalization is $3.3 trillion, and revenue was $61 billion last year. Expected P/E is 27.6x, and P/E is 49.6x. From this perspective, earnings per share (EPS) will take about 49.6 years to equal its price to the current P/E. Thus, betting on the stock is not very cheap. In contrast, the S&P 500 index is 21 times earnings.
The Wall Street Journal notes that the last time a major IT infrastructure vendor topped the list of most valuable U.S. companies was in March 2000, suggesting parallels with the dot-com crisis. However, analysts believe this time will be different, calling NVIDIA's revolutionary chips the century's most important invention.
The only thing is that while some $50 billion has been invested in Nvidia's chips since the boom began, generative AI startups have only brought in $3 billion in sales. So it will be a while before the extremely optimistic expectations materialize on paper or, rather, on the companies' balance sheets.
As for what to expect next, as long as the stock market is bullish and optimistic about the future, the AI bonanza and love for tech stocks, especially the leading ones, may persist. However, the riskiest and most expensive stocks could undergo a significant correction once the mood changes. The question is not if it will happen but when.
To determine the latter, it is advisable to monitor macroeconomic indicators, as they indicate the general state of the economy, forecast future consumer demand, etc. On the one hand, a fall in the exchange rate may force the Fed to lower interest rates, but on the other hand, demand for specific goods and services may fall.
