Nvidia Goes Parabolic, Maybe Hyperbolic

In the autumnal month of November 2022, the advent of ChatGPT’s gift of complimentary artificial intelligence unto the populace heralded the commencement of what one might call the AI and Nvidia-fueled Bull market. The lexicon exalting Nvidia’s stratospheric valuation and sales supernova stood justified for the past 20 months, a period where its shares ascended from under 11 to 140 today. Since the onset of the first quarter of 2023, the profits of NVDA have witnessed an exponential surge of 645%. Nevertheless, the precipitous leap from a market capitalization of 250 š‘š‘–š‘™š‘™š‘–š‘œš‘› š‘”š‘œ š‘Žš‘› 3.5 trillion in a relatively brief span raises prudent concerns regarding the prospect of an imminent phase of consolidation over the next several months. As the stock appreciates in parabolic fashion, the forward estimates by analysts keep rising in what may be hyperbolic behavior. We feel strongly that growth rates and margins will shrink each year going forward, although a 4 trillion valuation seems within reach. Revenue and earnings were growing in sync with investor valuations for much of this monster move, but lately the shares are rising as part of a FOMO gold rush. Due to the hyper appreciation, we would expect a 25 to 30% correction by October that would trigger a new wave of buying.Ā 

Not to indulge the fervor of the FOMO contingent unduly, it is noteworthy that the valuation of NVDA’s shares presently outstrips the entirety of stock market wealth in France, Germany, or the United Kingdom.Ā 

The perturbation concerning the narrow stock market leadership has arisen as a burgeoning concern ever since the dawn of the Bull market. The oscillating jaws of divergence have yawned wide open in recent months, characterized by the seven foremost mega-cap tech entities spearheaded by NVDA soaring to the startosphere, whilst the remaining 493 stocks enveloped within the SP 500 Index drudged in a downward trajectory. Historically, the parabolic ascendants have experienced a substantial descent, contracting the valuation differential, rather than the laggards catching their stride. To date, this Bull market has exhibited distinctiveness, predicated upon the prospect that the AI movement is anticipated to yield substantial margin enhancements across sundry industries.

Ā Seasonal cycles seldom mirror their antecedents with precision, yet favorable investor tailwinds linger through July or August before correction risk rises substantially as investors come back from summer vacations and reduce equity holdings until election day. The top 3 world beater stocks (NVDA/AAPL/MSFT) tested a $10 trillion valuation today with the vanguard leadership symbolized by Nvidia transcending its peers. The large cap tech meltup may continue through July, but even an early inning Bull market needs time to digest their large meal.

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