Matein Khalid
Voltaire’s Dr. Pangloss’s observation that we live in the best of all possible worlds definitely is true for those who held Nvidia (NVDA) into what prove to be another earnings blockbuster and now see the shares rise from 660 the night before D-Day to almost 823 at the Friday close. The problem with NVDA is that it is no longer on Wall Street but has been catapulted to Valhalla, the Nordic abode of the gods. I was gaga over NVDA at 150 last January but am scared to invest new money in it now at 823 since rational investment metrics work beautifully with the stock when it was 150 and listed on Nasdaq but vanish now that it is 823 and listed on Valhalla since it is a cult. In any case, I do not deny that this has been one of the greatest financial bonanzas we will ever see in our lifetime.
NVDA revenues were $17 billion in 2021. They could well top $60 billion in 2024. Data center revenues alone for the January quarter were an incredible $18.4 billion, up 409% from $3.6 billion a year ago. Dell and HP Enterprises confirmed that demand for AI cloud servers powered by NVDA’s GPU chips is still white hot and the lead time for the H100 product is rising, not falling. This demonstrates that NVDA is at the epicenter of the AI gold rush that is estimated by Silicon Valley techno-economists as a $1.8 trillion TAM by 2030. There is no doubt that generative AI will get the lion’s share of the planned capex by the Valley’s $12 trillion hyperscalers and accelerated deployment is now mission critical for every major cloud platform in the world across industries and continents. After all, these cloud platforms accounted for more than 50% of data center revenues in the last quarter.
Valuation is a lousy timing indicator and NVDA’s forward price earnings ratio is still 36X, well below its expected growth rate of near 50% at least in the next 2-years. So it is not entirely irrational to see its 170-point move since the day before its earnings on Feb 21. Moral of the story, que sera sera and never forget Keynes’s dictum that markets can remain irrational a lot longer than we can stay solvent.
In retrospect, the bull market that began in October 2022 has definitely scaled new highs. The S&P 500 is at 5134 and trades at 20.60X forward earnings though its median top 10 megacaps now trade well above the 25X FWE we witnessed when TMT last went parabolic at the March 2000 dotcom bubble top. This is scary, especially since there are cracks now appearing in the macro ice which the Volatility Index (VIX) at 13 simply does not reflect. Even the Mag-7 is no longer the Mag-7 but the Mag-4 since Tesla is down 22% in 2024 and both Apple & Google are down 6-7% each. The Atlanta Fed real time GDP growth is tracking at 3%. This means there is no way the Fed will cut its policy rate 6 times and both inflation and US Treasury bond yields will creep higher, which is not exactly nirvana for supercharged go go growth stocks. Good luck but caveat emptor!
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