This blog is totally independent, unpaid and has only three major objectives.
The first is to inform readers of news and happenings in the e-Health domain, both here in Australia and world-wide.
The second is to provide commentary on e-Health in Australia and to foster improvement where I can.
The third is to encourage discussion of the matters raised in the blog so hopefully readers can get a balanced view of what is really happening and what successes are being achieved.
Tuesday, June 11, 2024
The Story Just Seems To Be More And More Amazing. Be Assured It Will Return To Earth!
This
appeared a few days ago:
Nvidia leaps into the $3 trillion club and could soon own it
Move aside Apple. If you haven’t heard of computer chipmaker and market rock star Nvidia, you haven’t been paying attention.
It is big enough to be its own stock market index. If it were an economy, Nvidia would kick France off the seventh spot in world GDP rankings. As an investment, it has spawned countless millionaires and billionaires in a few short years and is likely to deliver an even bigger crop in the months ahead.
Nvidia has now become the third member of the most exclusive of clubs – companies whose stock market value has topped $US3 trillion (that’s $4.5 trillion Australian dollars) – and pressed ahead of Apple to be just whisker shy of the top spot, currently occupied by Microsoft.
Even James Packer has become a latter-day Nvidia disciple – having doubled down on his investment in recent months.
But despite its size and meteoric rise in the market, Nvidia is hardly a household name. Most of us still don’t even know how to pronounce it. For those who want to sound informed at dinner parties, “in vidia” is its phonetic spelling – and it’s derived from the Latin word for “envy”. How appropriate.
With Nvidia’s chief executive and co-founder Jensen Huang getting mobbed by tech groupies at public events, what is the company’s secret superpower?
This company makes best-in-class computer chips – a vital ingredient for data processing. The recent boom in its earnings and value comes off the back of the excitement around the next iteration of artificial intelligence, generative AI, which requires an exponential lift in processing power.
If, as they say in business parlance, chipmakers are the picks and shovels of the AI explosion, then Nvidia is an earthmover.
Huang recently declared AI was the beginning of the next industrial revolution and that Nvidia would turn data centres into AI factories.
There are a few other players in this market (AMD, Intel) and while their share prices have also been on a tear, there is daylight between Nvidia and the rest of the pack.
Demand for Nvidia’s top-of-the-line processors is far outstripping supply as Microsoft, Meta Platforms and Google parent Alphabet race to expand their AI computing capabilities and dominate the emerging technology.
The recent explosion in Nvidia’s share price – which increased its market capitalisation by more than $US1 trillion in six weeks – is what has investors’ heads swivelling.
Over those six weeks, Nvidia’s market capitalisation has grown by more than four times the market value of BHP.
The company more than doubled sales to US$61billion in the year that ended in January 2024. That number is poised to nearly double again to over US$110 billion by January 2025. That is an 11-fold increase in sales (along with gross margin expansion) compared with the numbers in 2020.
Such breathtaking speed has naturally drawn the ire of sceptics who suggest caution about Nvidia’s ability to continue expanding its business and its share price at warp speed. Overtaking Apple on the trillionaires chart will add more fuel to that fire, but can Nvidia really deliver a repeat performance as far as its share price is concerned?
Nvidia’s stock price necessitates sustained double-digit revenue growth off its new US$110 billion base – and this is certainly possible. But there are investors who suggest that Nvidia’s outsized share price returns would imply revenue growth even greater than double digits.
Nvidia’s stock is responsible for a third of the S&P500’s gains this year, but the question is whether maintaining this breakneck pace of growth is realistic.
Nvidia doesn’t trade in a vacuum. Its share price performance will be influenced by broader market sentiment. And this calendar year, that sentiment has gone in the share market’s favour – particularly for the “growth” technology stocks (that typically populate the US Nasdaq Index).
Nvidia is part of the Nasdaq and S&P500 index and has been a large contributor to the overall positive performance of both. So for now, it looks like the tail is wagging the dog with Nvidia calling the shots.
I have to say I suspect we at peek ‘hype cycle’ here and that while the company has grown amazingly the share price and market value are really not presently reflecting reality and will be seen – a year or two from now – to have got ahead of themselves!!
It will be fascinating to see how sustainable the share price rise turns out to be!
Get back to me a year from now but I really suspect the rise is grossly overdone…
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