Nvidia Top The List in Market Cap: Is This A Tech Bubble?🫧
Is Nvidia Stock a Buy Now?
Nvidia became the most valuable company
Chipmaker Nvidia became the most valuable publicly traded U.S. company for a period last week, topping Apple and Microsoft. However, this peak was short-lived as its stock price soon dipped, bringing its market value back below to the third place.
Nvidia’s historic rise in valuation on Jun 18— the stock has reached $3.34 trillion (£2.63 trillion), a valuation which is now more than 180% higher than it was at the start of the year — has been driven almost entirely by demand for its graphics processing units (GPUs) that are at the heart of the boom in generative artificial intelligence and, more broadly, by the hype over AI. But is this meteoric rise indicative of a tech bubble?
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Nvidia’s income statement FY25 Q1
Nvidia's impressive financial performance has significantly driven up its stock price this year. According to Nvidia's disclosures, the company's total revenue for the first quarter of fiscal year 2025 reached $26 billion, marking an 18% sequential increase and a 262% year-over-year increase. This was Nvidia’s most profitable and highest sales quarter ever!
This growth was primarily driven by the rapid expansion of Nvidia's data center business💻, which contributed approximately 87% of the company's total revenue for the quarter. The surge in demand for advanced computing chips capable of handling AI workloads led to increased shipments of the NVIDIA Hopper GPU computing platform🤖, pushing data center revenue to a record $22.6 billion in the first quarter. This marks a 23% increase from the previous quarter and a staggering 427% rise from the same period last year, outpacing Nvidia's overall revenue growth. Benefiting from low inventory costs, component expenses, and operating expenditures, Nvidia's net income reached an impressive $14.9 billion, representing a staggering 628% year-over-year increase.
This outstanding financial performance has significantly energized investors, particularly retail investors. As a result, Nvidia's daily retail inflow has surged to an average of nearly $141 million since the earnings announcement, a substantial increase from the previous daily average of approximately $39 million.
Nvidia’s revenue growth
In the fiscal year ending January 28, 2024, NVIDIA achieved an annual revenue of $60.92 billion, marking an impressive growth rate of 125.85%.
If you're not yet aware of Nvidia's strategic pivot in recent years, this chart may upend some of your stereotypes. Seven years ago, nearly 80% of Nvidia's revenue came from GPUs for gaming, professional visualization, and automotive sectors, amounting to $6.91 billion annually. However, Data Center Processors for Analytics and AI have rapidly grown and now represent Nvidia's most significant revenue segment. While continuing to produce top-tier graphics cards for PC gamers, Nvidia's focus on supercomputing has propelled it to a three-trillion-dollar valuation. This success is fueled by the explosive growth of generative AI technologies like ChatGPT, which rely heavily on Nvidia GPUs for training and development.
🤔Is it a bubble?
Despite the massive outperformance of tech stocks, the evidence is almost incontrovertible that the current situation is not a bubble. First of all, Nvidia's formidable competitive edge, or "moat," is not just due to the complexity of its products but also because of its extensive and growing ecosystem. This advantage is largely thanks to its early mover status in the data center AI chip market. According to the Wall Street Journal, Nvidia boasts an estimated market share of 80% in specialised chips needed for most AI applications.
Moreover, Nvidia boasts a record-high gross margin, a stark contrast to many dot-com companies in the late 1990s. During the dot-com era, companies often had high valuations despite weak or non-existent earnings. For instance, Cisco experienced a steady decline in its gross, operating, and profit margins for many years before the dot-com bubble burst. Nvidia’s robust financial performance underscores the fundamental strength of its business, which is not solely reliant on speculative growth expectations​. The steep price climb makes Nvidia and other tech stocks vulnerable to profit-taking and sector rotation, but the volatility is likely to be short-lived. Despite a recent pullback earlier this week that erased gains from the past two weeks, Nvidia's stock price remains up by approximately 140% year-to-date.
Furthermore, neither Nvidia nor the broader market is anywhere near the extreme valuation levels observed during the dot-com bubble so far. During the peak of the dot-com bubble in 2000, Nasdaq 100 stocks traded at a staggering trailing price-to-earnings (P/E) ratio of 200, with companies like Cisco valued at more than 150 times their forward earnings. In stark contrast, Nvidia's and Nasdaq 100 stocks' current one-year forward P/E ratios stand at 47 and 32, respectively. This comparison highlights a more measured market sentiment and potentially more sustainable valuations in today’s tech sector.
Therefore, Nvidia's current high valuation are well-justified, rather than merely a case of speculative exuberance. It reflect Nvidia's robust profitability, cutting-edge technological innovation, and the surging market demand for its products, rather than being indicative of a bubble🫧.
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