Tech is looking bubbly… again.
So when I saw the news that American chip maker Nvidia’s stock price surged 25% in a single day last week, I thought I should really check my trading app and see how that guy is doing.
I had almost forgotten that I owned Nvidia.
(So it looks like it comes up sunny for Uncle Jon again, and he’s in the money. There you go.)
I bought Nvidia as a ‘picks and shovels’ play. You know that saying? “In a gold rush, buy the company that makes picks and shovels.”
Well, chips are the picks and shovels of the tech boom, so I thought I could own tech stocks, or I could own Nvidia, and own the picks and shovels.
Turns out that was a bit of genius on my part.
But if I’m honest, if I had remembered that I owned Nvidia a few months ago, I probably would have sold it.
And I probably would have followed the logic of Cathie Woods – the famous fund manager behind the ARK Innovation ETF. She owns lots of disruptors, but she sold out of Nvidia in January because it looked like it was getting expensive.
No kidding.
Nvidia currently trades at 60-times earnings. The FANG+ (Facebook, Apple, Amazon, Microsft etc) is trading at 30-times. The rest of the market at 17-times.
But it wasn’t current earnings that dazzled investors last week. It was projected earnings.
Basically, Nvidia has a near monopoly on the GPUs needed to power AI right now. They’ve become incredibly expensive and hard to get your hands on. Elon Musk reckons they’re harder to come by than drugs, although he admits that in the San Francisco tech scene, that’s not a high bar.
They saw where the tech was going, positioned themselves for AI, and then Chat-GPT blew up, and suddenly every major tech company (e.g Apple and Microsoft), and every silicon valley start up needed to get their hands on Nvidia’s chips.
The end result was a mother-of-all-guidances that said revenue would be 50% higher than markets were expecting.
So there’s reasons to be excited about Nvidia.
But 60-times earnings excited?
Maybe…?
There’s a grain of truth in every bubble, and right now people are wondering if US tech is getting bubbly… again.
Michael Hartnett of Bank of America calls it a ‘baby bubble’.
Right now, FANG+ is up 39% in 2023 so far. The rest of the S&P 500 is up just 2%.
That is, as far as the US market is concerned, there’s AI, and there’s nothing else.
But the last time we saw a gap like this was in the dot-com boom of 2000, and we all know how that ended.
But it’s a tough one to play.
Money goes where money has gone. Money flowing into Nvidia will call in even more money. Who knows how high it goes?
And in the absence of better options, why not bet the house on Apple and Microsoft?
The actual fundamentals don’t matter all that much.
I think I’m going to sit back and enjoy the ride. But that’s 1000% not financial advice. It won’t hurt me if the bubble unwinds, and history suggests it could run a lot further yet.
I’m willing to lose my stake just for the sake of an entertaining ride. What you do with your money is between you and your professional financial planner.
But I don’t know that I’d be betting a house on it either.
JG.