This market is devoid of any pretense of being rational. Multi-decade-high interest rates do not matter. A slowdown in bank lending? Pfft. Approaching recession? Prognostications of sour grapes. And the current poster child of this unbridled euphoria is NVIDIA, which has just exceeded Amazon’s lofty valuation metrics.
There have been more than 300 mentions of “generative AI” on S&P 500 conference calls so far this year --Alphasense
The phrase barely garnered a mention before 2023@CGrantWSJ https://t.co/uHbbnHMy5D pic.twitter.com/jPD5dzWo3Z
— Gunjan Banerji (@GunjanJS) May 9, 2023
There have been over 300 mentions of “generative AI” during the S&P 500 conference calls so far this year, perfectly encapsulating the AI mania that is sweeping through the market right now. In fact, a mere mention of the word “AI” is a sure-shot recipe for inducing stock price gains.
In this environment, NVIDIA continues to lead the AI bandwagon. Investors expect NVIDIA to corner a significant chunk of the AI training market via a dedicated suite of products under the ambit of its AI Foundation Services to enable clients to create and run customized generative AI models. Powered by NVIDIA’s AI supercomputers and the DGX Cloud, the AI Foundation Services currently boasts three main products: NeMo for text-based generative AI applications, Picasso for image-based AI applications, and BioNeMo for applications related to protein structure, sequencing, and molecular docking.
Toward the start of May, NVIDIA announced that its first DGX H100 systems were now being shipped to customers all around the world. As a refresher, the Hopper H100 GPU is touted as the world’s fastest data center chip. Based on TSMC’s 4nm node, the GPU delivers up to 4,000 TFLOPs of AI computing power.
Just yesterday, NVIDIA announced the $299 GeForce RTX 4060 GPU, based on the Ada Lovelace architecture, boasting of Deep Learning Super Sampling (DLSS) 3, and “superpowered by AI.”
This launch coincided with a spate of quite convenient stock price upgrades. For instance, Oppenheimer analyst Rick Schafer raised his price target for NVIDIA shares from $300 to $350 while stating that the stock should be immune to macroeconomic shocks due to the AI effect.
Similarly, Credit Suisse also increased the target for NVIDIA shares to $350 from $300. The bank believes that NVIDIA is perfectly situated to benefit from the “AI’s iPhone moment” as cloud providers scale up their AI and machine learning offerings.
All of these developments were sufficient to pump up NVIDIA shares by around 5 percent yesterday.
The $NVDA valuation has finally caught up to $AMZN. What should be valued higher: The weapons merchant enabling the next decade’s global AI wars, or a retailer who ships USB cables & shoes from China in cardboard boxes & rents out computers?
pic.twitter.com/WTlFp2Y9v2
— Wasteland Capital (@ecommerceshares) May 19, 2023
In a critical insight, NVIDIA shares are now frothier than their Amazon counterparts.
Consider the fact that NVIDIA is currently trading at a Next Twelve Months (NTM) P/E ratio of 70.8x, as per a tabulation by Finbox.
For reference, Amazon is currently trading at an NTM P/E ratio of 69.5x.
Nvidia has a free cash flow yield of only half a percent. And 70% of it is eaten up by Stock-based comp.
Nvidia now has a bigger market cap than Berkshire. Berkshire did 22 billion in FCF in 2022 compared to Nvidia's 8 billion. And Berkshire has no stock-based comp.
Meaning… pic.twitter.com/jWzlJWIkFg
— Joseph Carlson (@joecarlsonshow) May 18, 2023
Also, consider the fact that NVIDIA now has a free cash flow yield of just 0.5 percent, with around 70 percent of the free cash flow generated by the company consumed by its stock-based compensation.
".. Over the next 10 years, #AI .. could increase S&P500 profits by 30% or more over the next decade," Goldman Sach’s senior strategist Ben Snider told @CNBC Thursday.https://t.co/tjKQqVvYWd
— Carl Quintanilla (@carlquintanilla) May 18, 2023
Of course, Goldman Sachs expects AI to push up corporate profits by 30 percent in the next decade, with a 1.5 percent per annum increase in productivity over this period. But the real question remains:
“Who are going to be [AI] winners down the road?”
Right now, however, the market continues to salivate at every word that comes forth from NVIDIA’s newsroom. How long will this insanity continue? Time will tell.
from Wccftech https://ift.tt/qLShw91
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