Nvidia (NASDAQ: NVDA) just became the world’s most valuable company again after a quick burst from its stock price saw it leapfrog Apple.
With its market cap now at a staggering $3.6trn, it’s valued more highly than the entire London Stock Exchange!
But a sad anniversary is approaching in March. That will mark a year since I sold my shares in Nvidia. Since then, the stock is up 60% (cue Homer Simpson’s famous catchphrase)!
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To be fair, I assumed I was probably giving up further gains in the near term, hopefully to avoid a massive pullback in the medium term. However, I failed to factor in the likelihood of a Trump return, tax cuts, deregulation, and the rest of it. In short, the unrestrained unleashing of animal spirits on Wall Street.
So infectious have these spirits been that even Europe is interested in harnessing artificial intelligence (AI) rather than merely regulating it. The Labour government said it wants to “mainline AI into the veins” of the UK, though some of the use cases (like spotting potholes) are admittedly less heart-stopping.
Anyway, AI chip king Nvidia’s growth trajectory seems unstoppable once again. So, should I re-buy the stock in 2025?
Calling in the bot
Given that I seemingly sold Nvidia far too early, my human brain is clearly flawed and fallible. So I asked ChatGPT’s silicon AI brain for help.
It informed me that Nvidia’s data centre segment is growing rapidly due to increased cloud computing and AI adoption. The bot assured me that the “ongoing AI revolution is in its early stages“.
However, it cautioned that high interest rates, inflation, and a potential recession in 2025 could hurt tech stocks. I’d go along with the first couple of risks, though the probability of a recession seems low. Indeed, Torsten Sløk, the chief economist at Apollo Global Management, recently said he thought that the probability of a US recession this year is now 0%.
ChatGPT mentioned that the stock is often highly valued. That’s true, as the trailing price-to-earnings (P/E) ratio is 58.
On the other hand, it assured me that Nvidia has consistently delivered strong revenue and earnings growth. That’s less true because in late 2022 (just before ChatGPT was released and when I last bought shares) the company’s Q3 2023 revenue declined 17% year on year. Earnings fell 72%!
This highlights the cyclical nature of the semiconductor industry (which the AI assistant did highlight, to be fair).
Now, I had to push ChatGPT to get off the fence and give me an ‘opinion’. It did, sort of, saying that if I “believe in the long-term secular growth trends in AI, machine learning, and cloud computing, Nvidia could be a great addition to [my] portfolio in 2025.”
None of this has helped me much.
To buy?
Tech companies are apparently increasingly relying on synthetic data (i.e. made up by algorithms) to train AI after exhausting all human-generated data. But the challenges to overcome now include more hallucinations and even model collapses.
Will large language models ever prove profitable and justify the mind-boggling expenditure? Or are companies massively overspending? I’m still left with the nagging feeling that Nvidia’s sales, pricing power, and ultimately fat margins are unsustainable.
Due to these doubts, I’m not going to reinvest.
