Is Nvidia (Still) Overvalued?

Summary

Nvidia's shares surged to a record high, making it the world's most valuable company, surpassing Apple and Microsoft. The company's focus on GPUs, initially for gaming, expanded to cryptocurrency mining and AI, driving its stock price up 1,000% since 2020. Despite concerns over market reliance on a single firm, Nvidia's dominance in the AI chip market and potential geopolitical impacts suggest a future of continued growth or challenges, depending on AI's trajectory and global politics.

Takeaways

• 📈 Nvidia's shares climbed 3.5%, reaching a market capitalization of $3.34 trillion, making it the world's most valuable company, surpassing both Apple and Microsoft.
• 🏆 The last time a company on the S&P 500 was worth more than Apple or Microsoft was in 2011 with Exxon Mobil.
• 🚀 Nvidia's stock has seen an astronomical rise, with a 40% increase in the last month, 200% in the last year, and nearly 1,000% since 2020.
• 💰 Nvidia's success has contributed significantly to the S&P 500 and NASDAQ gains, with its stock being responsible for nearly a third of all gains on the S&P 500 and 40% on the NASDAQ index this year.
• 💡 Nvidia's CEO, Jensen Huang, has become a celebrity in the tech and meme stock world, reflecting the company's impact and popularity.
• 🛑 Despite Nvidia's stock being rated as a 'buy' by most analysts, its rapid rise and the market's reliance on a single company have caused anxiety among investors.
• 💼 Nvidia was founded in 1993 and went public in 1999, initially focusing on designing Graphics Processing Units (GPUs) for video games.
• 🔄 The company found new demand for its GPUs in the late 2010s with the rise of cryptocurrency mining, which also made it vulnerable to market volatility.
• 🧠 Nvidia's fortunes were transformed by the release of AI technologies like Chat GPT, as GPUs are essential for running and training AI models.
• 📊 Nvidia's revenues and profits have skyrocketed, with a 262% increase in revenues and 600% increase in profits year on year according to their latest results.
• 🌐 Nvidia's dominance in the high-end AI chip market, with approximately 95% market share, is attributed to its superior chips, networking, and industry-standard software framework, CUDA.
• 🔍 The future of Nvidia depends on the success of AI, geopolitical factors, particularly American sanctions affecting sales in East Asia, and its ability to maintain its near-monopolistic position in the chip market.

Q & A

Why did Nvidia's shares climb by 3.5% on Tuesday?

Nvidia's shares climbed by 3.5%, taking its market capitalization to a record high of $3.34 trillion, making it the world's most valuable company, surpassing Apple and Microsoft.

What was the last time a company listed on the S&P 500 was worth more than Apple or Microsoft?

The last time a company listed on the S&P 500 was worth more than Apple or Microsoft was AT&T Wireless back in 2011.

How much has Nvidia's stock risen in the last month, year, and since 2022 according to the video?

Nvidia's stock has risen by 40% in the last month, 200% in the last year, and nearly 1,000% since 2022.

What is Nvidia's contribution to the gains on the S&P 500 and NASDAQ index this year?

Nvidia has been responsible for nearly a third of all gains on the S&P 500 and 40% of all gains on the tech-based NASDAQ index this year.

What is Nvidia's CEO Jensen Huang's status in the tech and stock world?

Jensen Huang has become a sort of celebrity in both the tech and stock world, enjoying rockstar treatment at tech expos.

What is Nvidia's business model regarding the manufacturing of its chips?

Nvidia is a fabless company, meaning it designs its chips but outsources the manufacturing to others, usually Taiwan Semiconductor Manufacturing Company.

Why were Nvidia's GPUs initially popular in the gaming industry?

Nvidia's GPUs were initially popular in gaming because they are designed to perform thousands of simple tasks simultaneously, making them well-suited for graphics processing.

How did the cryptocurrency market impact Nvidia's business?

The cryptocurrency market created a new demand for Nvidia's GPUs because they were uniquely well-suited to crypto mining, although this also made the business vulnerable to crypto-related volatility.

What event in the tech industry significantly boosted Nvidia's fortunes?

The release of Chat GPT and the subsequent AI boom significantly boosted Nvidia's fortunes, as GPUs became useful for running and training AI models.

What is the potential risk to Nvidia's sales in East Asia due to geopolitics?

American sanctions could affect Nvidia's sales in East Asia, particularly China, which previously accounted for about 25% of revenue. However, Nvidia has mitigated this by creating chips under the sanctions threshold and rerouting sales via Singapore.

What is Nvidia's strategy to maintain its near-monopolistic position in the chip market?

Nvidia maintains its position by providing the best chips, the best networking kit, and the best software, with Cuda becoming the industry standard. This creates a monopolistic moat that insulates it from competitors.

Outlines

00:00

📈 Nvidia's Record-Breaking Market Capitalization

Nvidia's shares surged by 3.5%, propelling its market capitalization to an unprecedented high of $3.34 trillion, surpassing Apple and Microsoft to become the world's most valuable company. This achievement is particularly remarkable given that the last time a company on the S&P 500 outperformed these tech giants was in 2011 with X on mobile. Nvidia's stock has seen a remarkable rise, with a 40% increase in the last month, 200% in the last year, and a staggering 1,000% since 2020. The company's success has been a major driver of the S&P 500 and NASDAQ gains, with its CEO, Jensen Huang, enjoying celebrity status in the tech and stock market worlds. Despite the bullish outlook, concerns about the market's reliance on a single company have sparked investor anxiety. The video aims to explore how Nvidia reached this pinnacle and the sustainability of its growth, starting with its foundation in 1993 and its transition from a GPU designer for gaming to a key player in the cryptocurrency mining and AI booms.

05:01

🌐 Nvidia's Future: AI, Geopolitics, and Market Dominance

The future of Nvidia hinges on the potential of AI and the company's ability to capitalize on it. The video discusses the importance of geopolitics, particularly American sanctions, which have impacted Nvidia's sales in China but have been mitigated by strategic adjustments. The possibility of U.S. support due to Nvidia's strategic value in the tech war with China could be a boon for the company. Nvidia's near-monopoly in the high-end AI chip market, with approximately 95% market share, is attributed to its superior products and the ecosystem it provides, including the industry-standard Cuda framework. While competitors like AMD are attempting to break into the market, Nvidia's comprehensive offerings in chips, networking, and software have created a strong competitive barrier. The video also mentions the potential risks of overvaluation and the historical precedent of companies falling from monopolistic heights due to increased competition. Lastly, the script transitions to a personal anecdote about using Skillshare to learn magazine design, highlighting the platform's value in career development and the availability of a free trial for the first 500 users.

Keywords

💡Skillshare

Skillshare is an online learning community offering thousands of classes across various fields, taught by industry experts. In the video, it is mentioned as the sponsor who helped the creator with design courses, particularly for a magazine project, showcasing its utility in learning practical skills.

💡Nvidia

Nvidia is a leading technology company known for designing Graphics Processing Units (GPUs). The video discusses how Nvidia's market capitalization reached a record high, making it the world's most valuable company, largely due to its significant role in the AI and GPU market.

💡Market Capitalization

Market capitalization refers to the total market value of a company's outstanding shares of stock. The video highlights that Nvidia's market capitalization climbed to $3.34 trillion, a key factor in its rise to become the world's most valuable company.

💡AI Boom

The AI Boom refers to the surge in demand and development of artificial intelligence technologies. The video explains that Nvidia's GPUs are crucial for running and training AI models, which has significantly contributed to the company's growth and profits.

💡GPUs (Graphics Processing Units)

GPUs are specialized electronic circuits designed to rapidly manipulate and alter memory to accelerate the creation of images in a frame buffer intended for output to a display. In the video, GPUs are central to Nvidia's success, as they are used in gaming, cryptocurrency mining, and AI applications.

💡S&P 500

The S&P 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. The video mentions that Nvidia's value surpassed companies traditionally at the top of this index, such as Apple and Microsoft.

💡Cryptocurrency Mining

Cryptocurrency mining is the process of contributing computing power to verify transactions and secure a blockchain network, often rewarded with new cryptocurrency. The video notes that Nvidia's GPUs were well-suited for crypto mining, which initially boosted the company's sales.

💡NASDAQ

The NASDAQ is a stock exchange platform known for technology-based companies. The video states that Nvidia has been responsible for a significant portion of the gains on the NASDAQ index, indicating its impact on the tech market.

💡Overvalued

Being overvalued means that a company's stock price is higher than its perceived fair value based on its financials and market potential. The video raises the question of whether Nvidia's stock is overvalued, considering its rapid rise in valuation.

💡Monopoly

A monopoly exists when a single company dominates an entire market, often leading to high prices and limited choices for consumers. The video discusses Nvidia's near-monopoly position in the high-end AI chip market, which has allowed it to maintain high profit margins.

💡Geopolitics

Geopolitics involves the influence of political factors on international relations and how they affect economic and social systems. The video mentions that geopolitical factors, particularly American sanctions, could impact Nvidia's sales and market position.

Highlights

Nvidia shares climbed by 3.5%, reaching a market capitalization of $3.34 trillion and becoming the world's most valuable company.

Nvidia overtook Apple and Microsoft, who have been competing for the top spot for over a decade.

The last company to surpass Apple or Microsoft in value was X on Mobile in 2011.

Nvidia's stock has risen by 40% in the last month, 200% in the last year, and nearly 1,000% since 2020.

Nvidia's rise accounted for nearly a third of all gains on the S&P 500 and 40% of gains on the NASDAQ index in the current year.

Nvidia's CEO, Jensen Huang, has become a celebrity in both the tech and meme stock world.

Most analysts still rate Nvidia's stock as a buy despite its rapid rise.

Nvidia's success has raised concerns about the stock market's reliance on a single company.

Nvidia was founded in 1993 and initially focused on designing GPUs for video games.

Nvidia found new demand for its GPUs in cryptocurrency mining in the late 2010s.

The release of Chat GPT and the AI boom significantly increased demand for Nvidia's GPUs.

Nvidia's revenues are up 262% year on year, and profits are up 600% according to Q1 results.

Nvidia revealed its new NextGen Blackwell chips, which are expected to be twice as powerful for AI model training.

Demand for Nvidia's new Blackwell chips is outstripping supply.

Nvidia's future depends on the success of AI and its ability to maintain a dominant position in the GPU market.

American sanctions have impacted Nvidia's sales in China but the company has found ways to mitigate the effects.

Nvidia's potential strategic significance in the US-China tech war could lead to government support.

Nvidia's near-monopolistic position in the chip market is due to its high-quality chips, networking, and industry-standard software framework, CUDA.

Nvidia's future is also dependent on maintaining its monopolistic hold in the face of competition.

The video creator used Skillshare to learn design for a physical magazine project.

Skillshare offers thousands of classes across various fields and can help advance careers or side hustles.

The first 500 people to use a provided link will receive a one-month free trial of Skillshare.

Transcripts

this video was brought to you by

skillshare on Tuesday Nvidia shares

climbed by

3.5% taking its market capitalization to

a record high of $ 3.34 trillion and

officially making it the world's most

valuable company Le frogging both apple

and Microsoft who've been buying for the

top spot for more than a decade for

context the last time that any company

listed on the S&P 500 was worth more

than either apple or Microsoft was X on

mobile back in 2011 11 and Nvidia is

just the 12th company ever to lead the

index since its Inception in

1926 this marks a climax of a frankly

astronomical rise for NVIDIA which has

now seen its stock rise by 40% in the

last month 200% in the last year and by

nearly 1,000% since 2022 nvidia's rise

means that it's been solely responsible

for nearly a third of all gains on the

S&P 500 this year and 40% of all gains

on the tech-based NASDAQ index nvidia's

CEO Jensen hang has duly become a sort

of celebrity in both the tech and mem

stock World enjoying Rockstar treatment

at Tech Expos nonetheless even though

the vast majority of analysts still rate

nvidia's stock as a buy its vtiger rise

and the stock market's wider Reliance on

a single company has provoked some

understandable anxiety among investors

so in this video we're going to take a

look at how Nvidia became the world's

most valuable company and whether this

boom can really

last so let's start with a bit of

context about Nvidia itself Nvidia was

founded by hang and two other guys in

California in 1993 and went public in

1999 for most of its first 20 years or

so Nvidia focused on designing Graphics

processing units or gpus now Nvidia is

what's known as a Fab company so it

doesn't actually manufacture its chips

it just designs them and then outsources

the manufacturing to someone else

usually the Taiwan semiconductor

Manufacturing Company until relatively

recently these gpus were mostly used in

video games this is mainly because in

simple terms gpus are specifically

designed to perform thousands of simple

tasks at the same time which means that

they're well suited to Graphics

processing where textures lighting and

the rendering of shapes all has to be

done at once then in the late 2010s

Nvidia found a new demand for its chips

with cryptocurrencies because gpus were

also uniquely well suited to crypto

mining this was obviously great news for

NVIDIA but it made the business

vulnerable to crypto related volatility

which is why nvidia's stock tanked in

summer 2022 fortunately for NVIDIA

though only a few months after its

crypto related dip the company's

fortunes were transformed by the release

of chat GPT and the subsequent AI boom

and this is because gpus are also useful

for both running AI models and perhaps

more significantly training the models

in the first place which involves tons

of repetitive smaller tasks anyway the

AI boom we've seen over the last 18

months or so has Julie created a massive

demand for nvidia's gpus and revenues

have beaten expectations at every

earnings course since according to the

most recent results from the first

quarter of this year nvidia's revenues

are up 262 % year on year and its

profits are up 600% on top of that

analysts are bullish about future

revenues in March Nvidia revealed its

new NextGen Blackwell chips which one

claims will be twice as powerful for

training AI models as the current

generation of Hopper chips which were

only released last year and hang also

said that demand for these new Blackwell

chips was already way out stripping

Supply and preemptively promised another

new chip next year the combination of

eyering profits and bullish projections

have fueled nvidia's meteoric rise but

while nvidia's boom is sort of

understandable given the hype around Ai

and nvidia's dominant position in the

GPU Market the fact that they've gone

from essentially a second tier

semiconductor firm known for giving Call

of Duty better resolution to the most

valuable company in just 5 years has got

many investors asking is NVIDIA

overvalued well the first thing we need

to say is that this is is not investment

advice and more generally don't take

investment advice from YouTubers but

well even if you were looking for

investment advice this video wouldn't be

very helpful because the best answer we

can give to the question is NVIDIA

overvalued is it depends for starters it

depends on whether or not AI generally

ends up being all it's cracked up to be

we've already done a video on this so go

and check that out if you want to know

more but obviously nvidia's prospects

depend on not just whether AI ends up

being the Revolutionary technology that

advocates claim it will be but also

whether the companies buying Nvidia

chips are actually able to use AI to

capture value secondly it depends a

surprising amount on geopolitics the

main risk here is how American sanctions

might affect nvidia's sales in East Asia

American sanctions have already crippled

nvidia's sales in China which previously

accounted for about 25% of Revenue but

Nvidia has been able to mitigate this

damage by creating chips that fall just

under the American sanctions threshold

and re-rooting sales via Singapore which

now accounts for about 15% of all sales

however if American sanctions were to

escalate this would become significantly

more difficult on the flip side however

if the US decides that Nvidia is

strategically significant in its

escalating Tech war with China it might

end up receiving direct or indirect

support from us or other Western

governments becoming the West's deao arm

supplier for World War GPT would be an

immensely lucrative business for NVIDIA

because unlike its current customers

governments have basically zero in-house

engineering knowhow which means that

they'd have to not just buy Nvidia chips

but its entire infrastructure the US has

already signaled its willingness to

support domestic chip making via the

aptly named chips act which earmarks

some 50 billion dollars in subsidies for

american-based firms and even if it

doesn't actively support Nvidia its

strategic value might protect Nvidia

from antitrust regulations but perhaps

the main thing that nvidia's future

depends on is whether it can main its

near monopolistic position on the chips

Market nvidia's ridiculous profit

margins are a consequence of the fact

that it accounts for something like 95%

of all high-end AI chips now this is in

part because nvidia's chips are just

good but it's mainly because envidia

also provides the infrastructure that

surrounds the chips for stars Nvidia Now

controls something like 80% of the chip

networking Market but perhaps more

importantly Cuda which is the framework

Nidia uses to write software that makes

best advantage of its chips has become

the industry standard and it's not

compatible with other chips by providing

the best chips the best networking kit

and the best software Nvidia has

developed a sort of monopolistic Mo that

insulates it from competitors because

any serious Contender will need to beat

it on all three now despite efforts from

Big tech companies and direct

competitors like AMD to provide

Alternatives at the moment nvidia's grip

on the market looks relatively secure

and that's reflected through its stock

price nonetheless corporate history is

replete with instances of pioneering

companies that start off with a

well-defined monopoly get used to

charging monopolistic rates and then

come crashing down when competition

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