The Biggest Trend: Nvidia Just Won’t Stop

What Happened?

Just how long can Nvidia [NVDA] keep doing it?

Nvidia is the world’s largest company by market capitalization (valued at $3.6 trillion). And it just beat analysts estimates… again.

It is, of course, all thanks to what the company calls ‘The age of AI’. AI being artificial intelligence.

Analysts expected revenue of $33.2 billion for the quarter. The actual result was $35.1 billion. It doesn’t end there. The company forecast it would hit $37.5 billion in revenue for the current quarter.

It makes you wonder — is this really the ‘age of AI’, and if it is, how much longer can it last?

Why it Matters

The rise of Nvidia follows a path well-trodden by the other big tech giants.

Microsoft [MSFT] started out as a software and operating system company. Primarily, it’s still that today. Although it now also includes the gaming (Xbox) and Azure cloud computing business.

Amazon [AMZN] started as an online bookstore. Then it added more and more items until it became the go-to online store for almost anything. Over time, it has evolved too. It’s most profitable unit is Amazon Web Services, which is the market leader in cloud computing.

Apple [AAPL] began life as a rival to the personal computing and desktop publishing market. It had a niche, never matching the size of the PC market. But then the company went in an entirely new direction when it launched the iPhone.

The company went from a computing also-ran to a market leader in smart phone hardware and software.

Other big tech companies have similar stories. For some it was their first ‘idea’ that led to greatness. For others, it took one or two tries to get there.

The latter is the case for Nvidia.

Nvidia’s business mostly involved making graphics chips for the PC gaming industry. It did well from it. That was until the cryptocurrency boom started around 2012. That was when Nvidia helped meet the demand for the booming Bitcoin mining industry.

It stayed that way until the past three years, when the AI industry started to flourish. Nvidia was in the right place at the right time to benefit from this new, and arguably even bigger trend.

To such an extent that as recently as 2018, Nvidia’s market cap was just $170 billion. A long way below its current $3.6 trillion market cap. In fact, it was only just over a year ago that Nvidia’s market cap was $1.1 trillion.

For it to more than triple in a year is extraordinary.

The point here is that for much of the past three years especially, many investors have refused to buy Nvidia because they thought it was too expensive. And yet, the price has kept climbing.

So after all these gains, is it now finally too expensive to buy?

How it Affects You

Our game here isn’t to give personal financial advice. Instead, regardless of whether Nvidia is too expensive or not, there’s a teaching moment.

Every once in a while (these events aren’t as rare as you may think) big market trends occur that can run for years. Over the past 20 years, we’ve seen many of those trends play out. Mostly in tech.

Think of Apple in the mid- to late-2000s after the launch of the iPhone. Many thought Apple stock was too expensive, yet it continued to climb as it launched new products — such as the iPad.

It was a similar story with Amazon. It survived the dot-com bust and became a market leader. Yet, for much of the 2010s, folks thought Amazon was too expensive… that its low profit margins couldn’t justify such a lofty valuation.

Tesla [TSLA] is another example. The company attracted many hardcore investors. Those who would buy and hold the stock regardless of the company’s financial performance. They almost behaved like ‘stock fans’, rather than objective investors.

Many were so convinced it was too expensive, they attempted to profit by short-selling it — profiting from a falling share price. That turned out to be a big mistake. The price kept rising.

Now, we can’t know for sure if Nvidia’s current valuation makes it a worthy buy. But what we can say is that when big multi-year trends appear, investors must avoid the tendency to always dismiss it as hype.

Instead, when you see a trend, spend some time objectively analyzing and researching it. Try to figure out if it really is a ‘flash in the pan’, or if it has genuine staying power.

Bottom line, if you missed out on Nvidia at a lower price, don’t worry. There are other investing trends emerging all the time. But do try to make sure you don’t miss the next big trend. We’ll do our best to help you spot it.