NVIDIA Corp. (NVDA, Financial) has seen its shares skyrocket by nearly 550% since the beginning of last year, causing even optimistic investors to question the sustainability of its growth. This dramatic increase has propelled NVIDIA into becoming one of the world's largest companies by market value, adding $2 trillion over the past 15 months.
Peter Boockvar, chief investment officer at Bleakley Financial Group, notes that such a rapid ascent has pulled forward many years of future returns into a very short timeframe, making trading more challenging as fundamentals take a back seat.
Despite a minor 0.8% drop in shares on Tuesday, NVIDIA's dominance in the artificial intelligence (AI) chip market remains formidable. The company's revenue doubled last fiscal year and is projected to grow another 81% this year. However, the semiconductor industry is known for its cycles of booms and busts, and NVIDIA's reliance on a few large firms for a significant portion of its revenue could pose risks.
Microsoft Corp., Meta Platforms Inc., Amazon.com Inc., and Alphabet Inc. collectively account for over a third of NVIDIA's revenue. A slowdown in spending by these major data center owners could significantly impact NVIDIA's revenue and growth projections.
Competition is also heating up. NVIDIA's closest competitor, Advanced Micro Devices Inc. (AMD, Financial), has launched its AI accelerator, and Intel Corp. is also vying for a share of the lucrative AI chip market. Despite this, NVIDIA's CEO Jensen Huang remains confident in the company's comprehensive offering of chips, networking, and software for AI data centers.
Concerns over NVIDIA's valuation have resurfaced as its price-to-profit ratio climbs to 37 times projected profits over the next 12 months, up from about 25 times at the start of the year. Comparisons to the dot-com era highlight the importance of the price paid for shares, regardless of a company's eventual success.
Recent market activities also saw Trump Media & Technology Group Corp. surge by 44% after a high-profile merger, showcasing the volatile nature of tech investments.
Alibaba Group Holding Ltd. (BABA, Financial) and other tech giants have made headlines with significant moves in the market, including shelving IPOs and exploring buyouts, reflecting the dynamic and often unpredictable nature of the tech industry.
