It’s not a household name quite yet, but anyone who follows the stock market knows at least a little about Nvidia.
The company is the wonder of the year, a stock by which all others are measured. Nvidia designs the chips that make artificial intelligence work, and because A.I. is being hailed as the most important technological development since the internet, Nvidia shares have been rocketing since last year.
I’m not qualified to assess how important — or how dangerous — A.I. will one day become, but I do pay close attention to the stock market, which values Nvidia at more than $2.2 trillion, making it the third-largest public company in the world behind Microsoft and Apple.
Enthusiasm for A.I. is raising the share prices not only of Nvidia, but also of many other tech companies that are believed to be imbued with the technology’s potential, including Microsoft, Meta and Alphabet as well as other chipmakers like AMD, Taiwan Semiconductor and Intel.
But the blistering rate of Nvidia’s gains — an increase of about 290 percent over the past 12 months — has me and many Wall Street analysts wondering how sustainable this run is. The answer has implications for the entire market.
There are many ways to examine this, including traditional stock analysis, which considers sales, earnings, cash flow, business growth and momentum. I took an offbeat approach: asking several A.I. chatbots about Nvidia’s prospects as a stock. Specifically, I asked how big Nvidia’s market value would be in a decade if the company’s share price kept its current pace.
What they told me amounted to this: Nvidia stock’s sharp rise can’t continue like this for very long. And because much of the stock market is bound up in the same feverish A.I.-driven stock frenzy, the message is broadly true. If the market doesn’t slow down soon, it may inflate itself into a bubble — and all bubbles eventually burst.
On a personal level, I love new tech but I try not to become too excited about it until I’m confident it works safely and reliably. From what I can tell, A.I. produces spectacular images and is fun to play with, but it’s neither reliable nor safe (yet).
(The New York Times sued OpenAI and Microsoft in December for copyright infringement of news content related to A.I. systems.)
What’s in a quadrillion?
To their credit, all three of the A.I. chatbots I asked — Microsoft Copilot, powered by OpenAI’s Chat GPT-4; Google Gemini; and Anthropic’s Claude 3 — were reluctant to answer my questions directly.
Each one said it couldn’t assess stock valuations reliably or predict with the slightest degree of accuracy how a stock or the overall market would perform in the future. I wish human stock analysts said as much.
Just because Nvidia’s stock price is growing fast now doesn’t mean it will keep growing fast, and certainly not over periods as long as a decade, they all warned me.
But I pressed them to perform some basic calculations anyway, which I backstopped with 20th-century technology — a spreadsheet and a calculator.
The chatbots didn’t arrive at the same numbers every time and never agreed on the details. That’s another sign, in my humble estimation, that they’re not ready for prime time. I wouldn’t use them for math homework.
But in this case, the details didn’t really matter. Ultimately, and with considerable prompting, they all came up with the same basic conclusion: The simple laws of compound arithmetic tell us that if the company’s share price keeps rising at its current rate, Nvidia will end up with a market cap in the quadrillions of dollars.
Quadrillions are an order of magnitude I’m not comfortable with, so I resorted to a dictionary: One quadrillion dollars is 1 with 15 zeros after it, or a thousand trillion dollars in American parlance. (In British English, a quadrillion is even bigger: 1 with 24 zeros. I’m using the American definition.)
How big is that? The world economy — the combined size of all of the annual gross domestic products of every country on the planet — amounted to $100.88 trillion in 2022, according to the World Bank. So if Nvidia kept growing at its current annual rate, it would dwarf the output of the entire known economic universe within 10 years.
Claude 3, the Anthropic A.I. chatbot, calculated that Nvidia, at its current growth rate, would become a $2.76962 quadrillion company in 10 years, and then warned me: “This is an extraordinarily large number that seems implausible in reality, as it would make Nvidia larger than the entire global economy many times over.”
In plain English, Nvidia’s astonishing growth rate over the past year is far too high to continue for long. I’d be wary about buying shares of Nvidia, or any other stock, in the belief that its momentum is perpetual. What goes up can come down, and, somewhere down the line, it certainly will.
This warning reinforces what traditional valuation measures show. Nvidia’s share price, and the prices of many stocks, are high. They can be justified on the assumption that their sales and earnings will grow at a rip-roaring pace. But if share prices rise faster than earnings, the market party will eventually crash.
Remember Apple?
Nvidia is an impressive company. Its products have a great reputation and are in high demand, and it generates enormous, rapidly growing profits.
Its latest earnings report in February, which unleashed tremendous stock market optimism, contained eye-popping numbers. And in a conversation with Wall Street analysts then, Jensen Huang, Nvidia’s chief executive, gave Wall Street something exciting to mull over. The company’s technology is providing the foundations for a new industrial revolution, he said.
“We are now at the beginning of a new industry where A.I.-dedicated data centers process massive raw data to refine it into digital intelligence,” he said. “Like A.C. power generation plants of the last industrial revolution, Nvidia A.I. supercomputers are essentially A.I. generation factories of this industrial revolution.”
The sky is the limit for the next couple of years, he suggested.
But Nvidia will inevitably begin to grow more slowly. It’s absurd to think it can become bigger than everything else in the universe.
But it could still grow swiftly. Some companies have managed to sustain long-term rapid growth before.
Apple, at various stages since its founding in 1976, has perplexed skeptics who have periodically said it had become too large to keep expanding quickly. In 2012, for example, Apple’s market capitalization was $500 billion and its stock price had risen 68 percent in just eight months.
Back then, The New York Times cited an analyst who used a spreadsheet, not a chatbot, to assess Apple’s prospects. The analyst concluded that if the company grew at just 20 percent a year over the following decade — much slower than its growth rate had been in 2012 — Apple would be worth an impossible number by 2022: more than $3 trillion. That number doesn’t look outlandish now.
Apple’s market cap isn’t quite there yet, but it’s close, at about $2.7 trillion. Its old rival, Microsoft, which was much smaller than Apple in 2012, now has a market cap that surpasses $3 trillion. These two giants have risen and fallen many times and show every prospect of being able to do so again.
I don’t know whether Nvidia belongs in that exalted category, but it’s clear that even though Nvidia won’t be bigger than the entire universe, it could end up being substantially more valuable in the next 10 or 20 years. Then again, it might not.
It could be more like Cisco Systems, the most valuable company in the stock market in March 2000. That was the peak of another technology boom — the dot-com bubble. Cisco is still a solid company. Its products make up the backbone of the internet. But its market capitalization in 2000 was $567 billion. Now, it’s around $200 billion.
It will be fascinating to watch Nvidia’s destiny unfurl. But because I can’t predict how it or any company will fare in the long run, I don’t buy individual stocks — not Nvidia, Apple, Microsoft, Cisco or anything else.
Instead, I settle for broad low-cost index funds that track the entire market. They are a passive and less risky bet on the future that requires no stock picking.
If Nvidia grows rapidly for years to come, I won’t miss out entirely because the overall stock market will probably grow, too. If Nvidia falters, other stocks are likely, at some point, to pick up the slack. That’s what has happened over the past 100 years, anyway. The A.I. boom is a thrilling ride. If it starts to slow, those who have hedged their bets will be pleased that they did.