Nvidia shares have tumbled three times since October on the back of massive demand for artificial intelligence. That’s not a crazy development when you consider that Nvidia is a market leader in the field of computer chips, which are needed to drive the AI revolution.
For a brief moment, the company managed to enter the “exclusive club” of $1 trillion companies.
Exclusive club
Ultimately, Nvidia ended the May 30 trading day at $401, giving it a market cap of $992 billion. However, Nvidia’s share price peaked at $418 yesterday. This makes it clear that there is a gigantic hype surrounding Nvidia in particular.
The only question is whether it is justified that the valuation of Nvidia is now so enormously high. What you often see is that during a hype people no longer think about the fundamental values of a company’s financial health, but buy a share purely because of the idea that it is a good company.
In the United States, there are only four companies with a valuation of more than $1 trillion: Apple, Microsoft, Amazon and Alphabet (Google). From the beginning of the year, Nvidia’s share price is up 170 percent. In the past five years even by 541 percent.
Market leader
It is clear that Nvidia is the market leader in the field of GPUs. According to a recent Reuters report the company is responsible for the production of about 80 percent of these GPUs. Some analysts see Nvidia’s recent breakout as a sign that the market is overheating, but others expect there’s still a lot more room to grow for the company.
“Technical analysts and the mania surrounding AI have pushed Nvidia past a $1 trillion value and the company is not cheap,” said Jim Kelleher of Argus Research.
Kelleher therefore also believes that Nvidia may be a bit too expensive for the actual value of the company at the moment. Incidentally, Nvidia is not the only party that develops chips for artificial intelligence. Microsoft is also rumored to be developing its own AI chip to support applications for OpenAI.