When I look at the NVIDIA (NASDAQ: NVDA) stock price, mere numbers don’t seem to be enough. The market capitalization is currently around $3 trillion. But since its peak a month ago, the company’s value has fallen by about $460 billion.
To put it in perspective: That is almost double the market capitalization of AstraZenecathe UK’s largest listed company. And that’s just the extent of the price decline.
When “one AstraZeneca” becomes a viable unit of measurement for evaluating stock price movements, I wonder if the stock market has really gone crazy.
The bullish view
Of course, it’s all about the expected demand for artificial intelligence (AI). Nvidia makes the chips that are driving the AI revolution, and that should mean a big piece of a very big pie. But how big could the pie be?
If we believe the bulls, the global value of the AI market is expected to grow by 35% to $184 billion by 2024. And by 2030, it could reach $827 billion, about six times its 2023 value.
What this could mean for Nvidia is difficult to quantify at the moment. But at the moment the price-to-sales ratio (PSR) is 40. Appleis 9.6, while Microsofthas risen to 14. The Nasdaq average is around 5.3.
Even if revenues increase sixfold, Nvidia’s PSR would still be above the average of the technology stock index. But if the optimistic forecasts for AI growth prove correct, this could be a good value.
What the bears think
However, not everyone is so optimistic. A recent report by Goldman Sachs suggests that AI may not be as groundbreaking as the headlines suggest, and that big investments in AI stocks at today’s prices could be disappointing.
Economist Daron Acemoglu told Goldman Sachs that he expects AI to contribute only about 1% to the US economy over the next ten years. Goldman Sachs itself expects GDP growth of 6%.
There is talk that companies will invest a trillion dollars in AI development over the next few years. Even optimistic estimates suggest that it may take some time before this amount is recouped in the form of profits.
You know what all this reminds me of? Yes, the Internet revolution and the dot-com bubble that it created. I lived through it all and invested in it.
Bubble?
Everyone claimed that the Internet would revolutionize our daily routines, provide enormous cost savings and generate enormous revenues.
They were right. But that couldn’t save the share prices of the top companies from painful crashes when the first bubble burst.
Some rewarded their shareholders many times over. And while I avoided the pain by not investing a single cent in technology stocks, I missed out on the big winners, like Amazon.com.
So will Nvidia be the next Amazon? I don’t know. But I do know that even Amazon fell sharply from its early highs before it really started to grow.
The post “Is Nvidia about to face the biggest tech stock crash of all time?” appeared first on The Motley Fool UK.
Further reading
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Alan Oscroft does not own any of the stocks mentioned. The Motley Fool UK has recommended Amazon, Apple, AstraZeneca Plc, Microsoft, and Nvidia. The views expressed on companies mentioned in this article are those of the author and may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024
