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The Nvidia (NASDAQ: NVDA) stock price has been on a steady climb since April’s dip. It’s driven the company’s market cap to smash through $4trn — at $4.2trn at the time of writing on 21 July.
It seems hardly any time since the $3trn level was reached, but it looks like they’re all doing it. Microsoft is now valued at $3.8trn, with Apple pushing $3.2trn, as the ‘Magnificent Seven’ pioneers of artificial intelligence (AI) drive US markets upwards.
The trillion dollar club is growing too, with Taiwan Semiconductor Manufacturing Company the lastest to join the elite few. It’s surged above $1.2trn as I write.
Is anyone other than me looking nervously over their shoulders at the dotcom bubble of 1999? You know, the one that saw some stocks crash more than 90% when it burst?
Big Nvidia profits
Nvidia does have one big thing going for it that few in that early boom and bust shared. It’s profitable, and handsomely so. For the first quarter of the 2025 fiscal year, the company reported a 12% rise in revenue to $44.1bn. Net income climbed 26% to $18.8bn.
We’re looking at a forward price-to-earnings (P/E) ratio of 41. That might seem a bit high, but forecasts would bring it down to 32 by 2027. And the US government is allowing Nvidia to resume exports of its H20 processors to China. Those aren’t top-of-the-line chips, but Chinese demand is strong.
Despite the optimism, I think see a few red flags.
Expected to beat expectations
We’re entering Magnificent Seven reporting season in the US — with Alphabet and Tesla getting the ball rolling on 23 July. And commentators are increasingly voicing fears that merely good results might not be good enough.
As a bullish spell progresses, investors come to expect their growth stocks to keep beating analyst estimates. And if they don’t, well, we’ve seen what can happen when previous tech growth spells have turned.
I also see creeping doubts about how strong the big AI push really will turn out to be. Will the hoped-for transformation of the world happen quickly enough to justify today’s massive spend? Are the profits really there to cover the vast billions being ploughed into the race? How much of the spend is driven by fear of missing out?
We’ve already seen Apple moving more towards the AI sidelines. Maybe ‘AI in everything’ could be further away than the bulls think.
Buy, sell or what?
What these thoughts mean for the future of Nvidia is hard to say. Right now, I think the stock still looks reasonably good value even with that sky-high market cap. Nvidia also has a clear technical lead over its competitors, who I think face a very demanding challenge to catch up.
Those who don’t share my nagging doubts about the rapid pace of AI spending could do well to consider buying Nvidia stock now.
But I’ll wait on the sidelines, just in case we do hear that hiss of deflation (or, worse, a loud pop). I’ll sleep better without the risk.
