Financial markets/economy

Nvidia and the exponential growth of the AI stock market (which hasn't convinced everyone)

Posted by MoneyController on 28.02.2024

Nvidia has seen extraordinary growth on the stock market thanks to the trend towards artificial intelligence. For some analysts, it remains an investment with real value, while for others there is a risk that the company will be undermined by competitors sooner or later.

Artificial intelligence trend driving markets and Nvidia stock

There is little doubt that the artificial intelligence trend has been one of the biggest drivers of the stock market over the past year and a half, at least since the end of 2022, when OpenAI launched ChatGPT on the market. Not only has Microsoft, OpenAI's backer, benefited from this on the stock market, but so have other companies, but the biggest success has undoubtedly been Nvidia, which has reached a market capitalisation of almost two trillion dollars.

Phenomenal stock market growth

Nvidia specialised in the supply of graphics cards for video games. Its decision to also supply the market with microprocessors for running artificial intelligence programmes was particularly successful. On the stock market, Nvidia's growth has been nothing short of phenomenal: at the beginning of 2023, a share was worth just under $150, while today it is worth just under $790. Nvidia's P/E ratio is just under 67 (Microsoft's is just under 42). But what do financial analysts think?

Does Nvidia's share price reflect its fair value?

In addition to the results of the last quarterly report in 2023, there are those who believe that Nvidia's share price is in line with its fair value. This is the opinion of Brian Colello, equity strategist at Morningstar, who points to a number of strengths that the company can count on: from the race to artificial intelligence to the solidity of the companies with which Nvidia has contracts. Colello believes that while the risk of price volatility remains high in sectors such as this, he would not be surprised to see the company's shares continue to rise on the stock market.

The risk of competition from tech giants

However, there are those who believe that investing in Nvidia today is particularly risky. This is the view of portfolio manager Bert Flossbach, who points out that "Nvidia is a company operating in a very competitive space, given the presence in the same market of giants such as Microsoft, Amazon and Alphabet, as well as Advanced Micro Devices (AMD). For Flossbach, the risk of Nvidia losing its position of market dominance is therefore not so remote.

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