I understand Nvidia is in a very dominant position. But $4T market cap still seems absolutely insane to me. I've only read about the Cisco boom and bust during the Internet era, and this feels eerily similar (people who actually experienced it might feel differently though).
What could actually drag Nvidia down and make them spend decades in the dark like Cisco still does? So far the two things I've come up with are: (a) general disillusionment in AI and companies not being able to monetize enough to justify spending on GPUs. (b) Big companies designing their own chips in-house lowering demand for Nvidia GPUs.
I don't think Nvidia can counter (a), but can they overcome (b) by also offering custom chip design services instead of insisting on selling a proprietary AI stack?
One meta-lesson is probably that sustained effort by the same people or same culture matters
i.e. maybe you need “two hits” to become this big, separated by ~2 decades
For nvidia, it was graphics and then programmable GPUs (CUDA)
For Apple, it was GUI desktops and music players/phones
Google is up there, but I’d argue it’s closer to “one hit”, and limited by the founders stepping back and turning the company into an investment conglomerate, rather than being mission-based
When the founders leave, efficiency and creativity seem to be slowed by competing factions of upper management, often working at cross purposes
I’d say that in the best cases, institutional knowledge can build over 2 decades, but it’s also very possible to lose it
I'm not suggesting this is all luck, Nvidia has executed very well and their early investments in programmable GPUs really paid off as a result, but a lot of their insane valuation now is due to crypto and then LLMs which are basically two back to back once in lifetime goldrushes where Nvidia happened to be the best positioned shovel seller.
You can run a company well to prepare to ride such a wave should it appear, but you've also got to be born with horseshoes up your ass for this to work out as well as it has for Nvidia
I think Nvidia's market development efforts have meant more than its culture. Ever since Nvidia started moving towards general purpose compute with the 8800 GPU back in the mid 2000s, it's been actively growing markets - first in research (leading to AI advances), and now in autonomous driving, world simulation, biotechnology, and robotics.
The market for compute is endless, and Nvidia makes huge efforts to commoditize the software side of things so people can buy hardware.
NVIDIA put a lot of effort into making their hardware and accompanying software useful and usable. CUDA by itself might have never got any attention if not for the effort that NVIDIA puts into helping their customers use their technology, effectively. And they are by no means perfect at it. Most of their products are a horrible mess and they often have 7 different ways to do the same thing. A lot of their libraries are closed source and you're forced to use an API that links to a black box. There's lots to complain about.
Time for some grossly oversimplified back-of-the-proverbial-envelope value crunching! I’ll assume the average GPU price, for the sake of argument, is $1000. Let’s also assume their per-unit profit margin is roughly 30% (I found conflicting numbers for this on a casual search, esp. between figures that measure quarterly and annual income, I suppose it isn’t a surprise that their accountants frequently pull rabbits from hats).
Nvidia would need to move on the order of 4,000,000,000 units to hit $4T in revenue, more than triple that to realize $4T in profits. Even if the average per-unit costs are 2-3x my estimated $1k, as near as I’ve been able to tell they “only” move a few million units each year for a given sku.
I am struggling to work out how these markets get so inflated, such that it pins a company’s worth to some astronomical figure (some 50x total equity, in this case) that seems wholly untethered to any material potential?
My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth, even if the most basic arithmetic thoroughly perforates it.
That said, I nearly went bankrupt buying a used car recently, so this is a whole lot of unqualified conjecture on my part (but not for nothing, my admittedly limited personal wealth isn’t heavily dependent on such bets).
NVDA's current forward P/E ratio (price to earnings) is about 37.
That means if we hold constant the profit earnings, if you bought the whole company at its current valuation ($4tr), it would take you 37 years to break even.
Is this reasonable? Depends on sector and growth potential. To me, this is a "fair" valuation and not overly inflated based solely on existing earnings.
Nvidia's trailing P/E ratio is 53 (stock hitting a new high today). Its forward P/E ratio is 38.
A year ago both its trailing and forward P/E were higher. So the stock is relatively a bargain compared to what it was a year ago.
The price implies that revenues and profits are expected to continue to grow.
> My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth
DC GPUs from Nvidia are sold at $30-40k per piece. You might want to rethink your calculations.
Nvidia is going to sell >5 million Blackwells this year and will do $200b in revenue with that alone.
Nvidia has a high net profit margin of >50%. If Nvidia would make $4 trillion in revenue then they would have >$2 trillion in net profit. Then the market cap would easily be 5-10x higher than today because otherwise Nvidia would be the cheapest stock in history of all time.
Market cap is also a very bad indicator as it doesn't really tell how much money was really invested into the stock. Market cap is just a product of shares * prices. For example, I bought Nvidia shares in 2016 for a certain amount. These shares are >100x more valuable today but I didn't put any extra money into them. So 99% of "my" market cap was simply created by traders pushing up the stock price.
If tomorrow, the majority of Nvidia stock holders decide to sell and all stocks are sold then I guarantee you that never ever will $4 trillion be traded because if there is a strong sell move then the stock price will drop like a rock and the last sellers will get a fraction of money as they have based on todays market cap. We might be lucky to see $500b of trading volume.
It seems fairly obvious, to me, that the issue is that most people make money from the stock price changing rather than from any kind of intrinisic value of the underlying company.
In other words, why should it matter to me what the company's profit margin or asset base or what not is actually worth when I make money if the stock number goes up?
Thing is, NVIDIA ships waaaay more than GPUs. Or, perhaps more accurately, NVIDIA ships chips. Other manufacturers install those chips. Sitting in my office right now, I have 5 computers, and between them I'd estimate I have 15 NVIDIA chips, minimum. Maybe more, I haven't carefully examined my NVIDIA-based, ASUS-manufactured graphics card to see how many name-brand chips it has.
That's to say nothing of all the other products and services they build. I just visited their website, clicked on "solutions" at the top, and there's waaaay more there than just desktop GPUs. And its worth noting that NVIDIA doesn't manufacture or sell any of the down-market NVIDIA-based boards.
Given NVIDIA's role in data centers, I think the 4T market cap is, while probably still somewhat inflated by speculation, not so inflated as to be a bubble ready to pop.
The market price is supposed to account for future growth, not just for current revenue. Predicting future is speculative by definition, but it's not completely detached from reality to bet that Nvidia has the potential to grow significantly for some time (at some point either the market cap or the multiple will correct of course).
I also see where the reasoning here contradicts the reality. If we assume Nvidia only sells $1000 gpus and moves a few millions a year, then how did it received $137B in FY2025? In reality they don't just sell GPUs, they sell systems for AI training and inference at insane margins (I've seen 90% estimates) and also some GPUs at decent margins (30-40%). These margins may be enough to stimulate competition at some point, but so far those risks have not materialized.
>I’ll assume the average GPU price, for the sake of argument, is $1000.
They make big bucks on the premium end of their chips. Those contracts are typically on the 8-figure range, I would think they easily have thousands of them around the world.
Even Jensen has implied[1] that the consumer GPU market (i.e. gaming) holds a minor share of revenue these days.
1: Citation needed, I know. I mean comments like "we are not going to abandon gamers, etc...".
Nvidia's revenue is $44 billion in the last quarter. It's been growing at 5 billion a quarter. With a 50% profit margin. It is the most profitable company in the world; just take a look at the fiscals.
If that justifies the valuation or not, your guess is as good as mine.
Yeah, but their AI/data center GPUs go for closer to $100K, and I've heard that they obtain >50% margins on those. I agree with your overall point that the $4T valuation is not justified by current profits.
Nvidias business is about data center now. The data center gpu’s sell for 50k+ each and have unit margins over 70%. They’re making truly fuckloads of money off the AI boom.
This should be compared though to the general trend in current US stocks valuations, that are on par with Tulip Mania and Dot-com bubble.
Some examples:
- Palantir - valued at 337B USD (more than Meta less than 3 years ago !), with a revenue of 2B and net incomre 500M
- Gamestop - valued at 10B USD, with a quickly declining revenue of 4B and net income 100M (they lost money most of the time in the past 10 years)
- Coreweave - valued at 74B USD, on 1B revenue (growing quickly), 300m net loss, and very discutable accounting
- Tesla - valued at 1000B USD, on 100B revenue (which is now collapsing), 7B net income which will most probably turn into a less starting this quarter (no more ZEV credits) or next quarter (no more 7500$ subsides)
- xAI - valued at what, 100B USD ? On probably 0 revenue and huge losses.
Same goes for OpenAI, SpaceX etc, and I'm not even starting to talk about crypto (yeah, Dogecoin has a 'market cap' of 27B USD...).
We are living almost unprecedented times in terms of US stock valuations.
Amazon also had a p/e over 100 and a p/s over 10 in its earlier history.
You also have to look at the market size these companies are addressing while having few competitors.
Tesla for example is addressing "driving cars" with its self-driving project. There are 2B cars on the road. If we value driving them at $5 per day, that is $5 * 365 * 2B = $3650B in annual value. Capturing 10% of that would be $365B per year. At a p/e of 30 that is over $10T - ten times Tesla's current market cap.
To think the entire company could have failed multiple times in the 90s if not for Sega's CEO bailing Nvidia out after Sega fucked up the Dreamcast contract.
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
I thought Apple would drive it to the ground after their fallout considering how Jobs handled things. Nvidia rode that crypto wave and AI was there at the very end of that rainbow. Having said that, they kept at CUDA all these years even before pandemic. They earned it 100%!
Everybody already uses AI, it's being shoved down our throats. You literally cannot use Google or Amazon without AI nonsense popping up. People don't seem too happy about it though. I can't say that these features have improved my Amazon or Google experiences. In fact, in the case of the latter, the experience has only gotten worse as they've injected more AI.
i ll give you the opposite viewpoint. 90% people are using AI because it is being forcefully shoved into google, amazon, microsoft etc. Most AI models offer little value at the moment and once the novelty wears off, even a real AI breakthrough will create aversion amongst the masses, this ll cause a huge crash
My personal pet peeve is comparisons like this, which aren’t inflation-adjusted. Is this a higher real valuation than the any other company in existence so far? From the information provided, it is unclear.
The unspoken, rarely acknowledged element of this story and other valuation stories is the devaluation of the US Dollar. That certainly contributes to the trend of record valuation after record valuation.
It’s a bit short sighted to say that nvidia doesn’t physically make anything. Because they sure as hell physically sell something. One of the most wanted products on earth. For huge margins.
[+] [-] ra7|8 months ago|reply
What could actually drag Nvidia down and make them spend decades in the dark like Cisco still does? So far the two things I've come up with are: (a) general disillusionment in AI and companies not being able to monetize enough to justify spending on GPUs. (b) Big companies designing their own chips in-house lowering demand for Nvidia GPUs.
I don't think Nvidia can counter (a), but can they overcome (b) by also offering custom chip design services instead of insisting on selling a proprietary AI stack?
[+] [-] chubot|8 months ago|reply
i.e. maybe you need “two hits” to become this big, separated by ~2 decades
For nvidia, it was graphics and then programmable GPUs (CUDA)
For Apple, it was GUI desktops and music players/phones
Google is up there, but I’d argue it’s closer to “one hit”, and limited by the founders stepping back and turning the company into an investment conglomerate, rather than being mission-based
When the founders leave, efficiency and creativity seem to be slowed by competing factions of upper management, often working at cross purposes
I’d say that in the best cases, institutional knowledge can build over 2 decades, but it’s also very possible to lose it
[+] [-] bayarearefugee|8 months ago|reply
I'm not suggesting this is all luck, Nvidia has executed very well and their early investments in programmable GPUs really paid off as a result, but a lot of their insane valuation now is due to crypto and then LLMs which are basically two back to back once in lifetime goldrushes where Nvidia happened to be the best positioned shovel seller.
You can run a company well to prepare to ride such a wave should it appear, but you've also got to be born with horseshoes up your ass for this to work out as well as it has for Nvidia
[+] [-] LarsDu88|8 months ago|reply
The market for compute is endless, and Nvidia makes huge efforts to commoditize the software side of things so people can buy hardware.
[+] [-] dachworker|8 months ago|reply
[+] [-] chubot|8 months ago|reply
So that is helping Nvidia reach $4T, and all the other tech companies
They also probably have good ways of offsetting the weakness of the dollar, whereas regular citizens and investors don't
[+] [-] floxy|8 months ago|reply
[+] [-] basch|8 months ago|reply
[+] [-] nativeit|8 months ago|reply
Nvidia would need to move on the order of 4,000,000,000 units to hit $4T in revenue, more than triple that to realize $4T in profits. Even if the average per-unit costs are 2-3x my estimated $1k, as near as I’ve been able to tell they “only” move a few million units each year for a given sku.
I am struggling to work out how these markets get so inflated, such that it pins a company’s worth to some astronomical figure (some 50x total equity, in this case) that seems wholly untethered to any material potential?
My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth, even if the most basic arithmetic thoroughly perforates it.
That said, I nearly went bankrupt buying a used car recently, so this is a whole lot of unqualified conjecture on my part (but not for nothing, my admittedly limited personal wealth isn’t heavily dependent on such bets).
[+] [-] scottiebarnes|8 months ago|reply
That means if we hold constant the profit earnings, if you bought the whole company at its current valuation ($4tr), it would take you 37 years to break even.
Is this reasonable? Depends on sector and growth potential. To me, this is a "fair" valuation and not overly inflated based solely on existing earnings.
[+] [-] Ologn|8 months ago|reply
A year ago both its trailing and forward P/E were higher. So the stock is relatively a bargain compared to what it was a year ago.
The price implies that revenues and profits are expected to continue to grow.
> My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth
I wouldn't disagree with this.
[+] [-] Jlagreen|8 months ago|reply
Nvidia is going to sell >5 million Blackwells this year and will do $200b in revenue with that alone.
Nvidia has a high net profit margin of >50%. If Nvidia would make $4 trillion in revenue then they would have >$2 trillion in net profit. Then the market cap would easily be 5-10x higher than today because otherwise Nvidia would be the cheapest stock in history of all time.
Market cap is also a very bad indicator as it doesn't really tell how much money was really invested into the stock. Market cap is just a product of shares * prices. For example, I bought Nvidia shares in 2016 for a certain amount. These shares are >100x more valuable today but I didn't put any extra money into them. So 99% of "my" market cap was simply created by traders pushing up the stock price.
If tomorrow, the majority of Nvidia stock holders decide to sell and all stocks are sold then I guarantee you that never ever will $4 trillion be traded because if there is a strong sell move then the stock price will drop like a rock and the last sellers will get a fraction of money as they have based on todays market cap. We might be lucky to see $500b of trading volume.
[+] [-] wredcoll|8 months ago|reply
In other words, why should it matter to me what the company's profit margin or asset base or what not is actually worth when I make money if the stock number goes up?
[+] [-] petsfed|8 months ago|reply
That's to say nothing of all the other products and services they build. I just visited their website, clicked on "solutions" at the top, and there's waaaay more there than just desktop GPUs. And its worth noting that NVIDIA doesn't manufacture or sell any of the down-market NVIDIA-based boards.
Given NVIDIA's role in data centers, I think the 4T market cap is, while probably still somewhat inflated by speculation, not so inflated as to be a bubble ready to pop.
[+] [-] Spinnaker_|8 months ago|reply
[+] [-] tsvetkov|8 months ago|reply
I also see where the reasoning here contradicts the reality. If we assume Nvidia only sells $1000 gpus and moves a few millions a year, then how did it received $137B in FY2025? In reality they don't just sell GPUs, they sell systems for AI training and inference at insane margins (I've seen 90% estimates) and also some GPUs at decent margins (30-40%). These margins may be enough to stimulate competition at some point, but so far those risks have not materialized.
[+] [-] moralestapia|8 months ago|reply
They make big bucks on the premium end of their chips. Those contracts are typically on the 8-figure range, I would think they easily have thousands of them around the world.
Even Jensen has implied[1] that the consumer GPU market (i.e. gaming) holds a minor share of revenue these days.
1: Citation needed, I know. I mean comments like "we are not going to abandon gamers, etc...".
[+] [-] Stevvo|8 months ago|reply
[+] [-] gautamcgoel|8 months ago|reply
[+] [-] HDThoreaun|8 months ago|reply
[+] [-] TheAlchemist|8 months ago|reply
Some examples:
- Palantir - valued at 337B USD (more than Meta less than 3 years ago !), with a revenue of 2B and net incomre 500M
- Gamestop - valued at 10B USD, with a quickly declining revenue of 4B and net income 100M (they lost money most of the time in the past 10 years)
- Coreweave - valued at 74B USD, on 1B revenue (growing quickly), 300m net loss, and very discutable accounting
- Tesla - valued at 1000B USD, on 100B revenue (which is now collapsing), 7B net income which will most probably turn into a less starting this quarter (no more ZEV credits) or next quarter (no more 7500$ subsides)
- xAI - valued at what, 100B USD ? On probably 0 revenue and huge losses.
Same goes for OpenAI, SpaceX etc, and I'm not even starting to talk about crypto (yeah, Dogecoin has a 'market cap' of 27B USD...).
We are living almost unprecedented times in terms of US stock valuations.
[+] [-] ArtTimeInvestor|8 months ago|reply
Amazon also had a p/e over 100 and a p/s over 10 in its earlier history.
You also have to look at the market size these companies are addressing while having few competitors.
Tesla for example is addressing "driving cars" with its self-driving project. There are 2B cars on the road. If we value driving them at $5 per day, that is $5 * 365 * 2B = $3650B in annual value. Capturing 10% of that would be $365B per year. At a p/e of 30 that is over $10T - ten times Tesla's current market cap.
[+] [-] boshalfoshal|8 months ago|reply
[+] [-] LarsDu88|8 months ago|reply
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
[+] [-] lvl155|8 months ago|reply
[+] [-] thomassmith65|8 months ago|reply
That said, I would be wary about buying shares of any company tied to AI right now.
Very few people scrambling to throw money into 'AI stocks' have any idea about technology. When the music stops it's going to be ugly.
[+] [-] EcommerceFlow|8 months ago|reply
This is a technology that will reach 90% usage for almost everything people do, so there is still so much more growth to go.
[+] [-] babypuncher|8 months ago|reply
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[+] [-] pinkmuffinere|8 months ago|reply
Edit: scrolling through the entries in the Wikipedia page here (https://en.wikipedia.org/wiki/List_of_public_corporations_by...), it seems likely that this is the highest valuation in real terms (ie, adjusted for inflation)
[+] [-] mg|8 months ago|reply
If so, the total addressable market of Nvidia might be pretty big.
Let's take the human body as a point of reference. The weight of the human brain makes up about 2% of the human body.
Earth weighs in at about 10^25 kg. 2% of that is about 10^22 kg.
All computer hardware on planet Earth weighs what? Maybe a billion computers times 10 kg? That would be 10^10 kg.
So we still would have to up that by a factor of 10^12.
Still 99.99999999% of the way to go.
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