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NVIDIA's moon landing

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· Company makes history as it enters the $1T MC club

· Growth expectations are stretching valuations too much

· Investors chasing momentum should be careful

Nvidia’s market cap (MC) went pretty much vertical from $279 billion in October of last year to over $1 trillion this week, as stronger-than-expected sales, driven by AI mania, propelled the stock’s market price to an all-time high of over $400 a share, leaving many market participants wondering if its explosive growth will continue — or if the AI craze is merely temporary? A picture containing text, screenshot, line, plot

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The company’s MC breached the $1 trillion mark this week, joining the elite $1 trillion MC valuation club with only five other names on planet Earth (or at least in the public valuation space) with the likes of 4 tech juggernauts (Apple, Microsoft, Alphabet, and Amazon) and 1 Oil Behemoth (Aramco). Thus, becoming the first-ever chipmaker to reach that incredible milestone. A picture containing text, screenshot, diagram, plot

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Nvidia’s (trailing twelve months) revenues at $25.88 billion are only a fraction compared to the other tech giants such as Apple, Microsoft, Alphabet and Amazon, all of which have top-line north of $200 billion.

Hence, why are investors pulling into it in the first place – the answer is Nvidia’s enormous growth potential generated by the AI euphoria.

Tsunami of new orders

The company stock price is flying on the back of massive demand from AI service providers selling graphics chips that powered everything from the video game boom to the rise of cryptocurrency and the industry’s big bet on the metaverse as Q2’2023 sales are projected to topple $11B compared to analysts (polled by Refinitiv) expectations of $7.15B!

“…we’re seeing incredible orders to retool the world’s data centers, ” said Jensen Huang, Co-Founder & CEO, on the latest conference call.

And that is only the beginning. Analysts, as per Tradingview figures, expect Nvidia’s annual revenue to skyrocket or effectively triple in the next few years to a mind-blowing $90 billion by FY 2026, which translates to an eye-popping growth rate of 231% compared to its latest FY 2022 result of $27 billion. A picture containing text, screenshot, number, line

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AI hype or the real deal?

Pulling out, the Nvidia story as stock is just a series of waves of investor euphoria that it has ridden, from graphics chips to data centers to crypto to AI. You can see below how its price-earnings-to-growth ratio has soared and fallen over the last decade.

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The latest narrative that drives the latest monstrous rally is about AI. What investors are betting on is that Nvidia will make enormous profits from the chips used to power these AI systems. No one is betting against the incredible momentum as the short interest is only 1,17%. And rightfully so, Nvidia’s breathtaking triple digits return of over 174% YTD is by-far the highest in the S&P 500 as the stock added over $280bn in market cap over the last few days.

Undoubtedly Nvidia’s processors have been the gold standard for training AI models such as Google’s Bart and OpenAI’s ChatGPT.

However, valuations are stretched, and we might see some meaningful pullback. Despite the current “AI” bubble being considered a “baby bubble” compared to previous ones, irrational exuberance times fuelled speculative periods that repeatedly recurred over the last 45 years as investors’ imaginations outpaced the realities of the underlying fundamentals.

Hence, investors must be careful not to chase the stock as the fear of missing out (FOMO) is a dangerous emotion that traders often flirt with and is one of the critical ingredients that inflates an asset bubble.

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Priced to perfection?

This insatiable hunger for returns has distorted the picture for Nvidia. The Stock trades at a jaw-dropping 30x sales and a hair-raising 182x earnings, despite having a fraction of the sales of the big ballers such as Apple, Amazon, and Microsoft, as mentioned earlier. The big emphasis is placed on the quantity of sales expected to jump 3x by 2026 to compress those out of this planet multiples to more meaningful historical levels. Investors should ask themselves, what if the company cannot meet those expectations? Well, then, the stock will have to adjust to the downside. A picture containing text, screenshot, line, plot

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It’s worth pointing out that the only time when valuations were at such incredibly high was during the dot.com bubble, and the stock did not live up to them. Hence, the subsequent periods were terrible for investors as “everyone had to own” the stock times proved awful for the company’s returns.

Nvidia is not only richly valued on a historical but also on a relative basis. It is the most expensive stock in the semiconductor space in the US, with a mind-blowing 12-month forward P/E ratio of over 50!

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Bottom line:

The stock seems to be priced to perfection as the incredible growth expectations are already embedded in the company’s share price, which does not mean the current momentum cannot continue.

“Markets can remain irrational longer than you can remain solvent” – John Keynes.

Investors might consider shorting the stock using our ETPs -1x NVIDIA and -3x Nvidia .

Alternatively, those who want to chase the momentum could long it with our 2x NVIDIA and 3x NVIDIA .

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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