Is Nvidia (Still) Overvalued?

this video was brought to you by skillshare on Tuesday Nvidia shares climbed by 3.5% taking its market capitalization to a record high of $ 3.34 trillion and officially making it the world's most valuable company Le frogging both apple and Microsoft who've been buying for the top spot for more than a decade for context the last time that any company listed on the S&P 500 was worth more than either apple or Microsoft was X on mobile back in 2011 11 and Nvidia is just the 12th company ever to lead the index since its Inception in 1926 this marks a climax of a frankly astronomical rise for NVIDIA which has now seen its stock rise by 40% in the last month 200% in the last year and by nearly 1,000% since 2022 nvidia's rise means that it's been solely responsible for nearly a third of all gains on the S&P 500 this year and 40% of all gains on the tech-based NASDAQ index nvidia's CEO Jensen hang has duly become a sort of celebrity in both the tech and mem stock World enjoying Rockstar treatment at Tech Expos nonetheless even though the vast majority of analysts still rate nvidia's stock as a buy its vtiger rise and the stock market's wider Reliance on a single company has provoked some understandable anxiety among investors so in this video we're going to take a look at how Nvidia became the world's most valuable company and whether this boom can really last so let's start with a bit of context about Nvidia itself Nvidia was founded by hang and two other guys in California in 1993 and went public in 1999 for most of its first 20 years or so Nvidia focused on designing Graphics processing units or gpus now Nvidia is what's known as a Fab company so it doesn't actually manufacture its chips it just designs them and then outsources the manufacturing to someone else usually the Taiwan semiconductor Manufacturing Company until relatively recently these gpus were mostly used in video games this is mainly because in simple terms gpus are specifically designed to perform thousands of simple tasks at the same time which means that they're well suited to Graphics processing where textures lighting and the rendering of shapes all has to be done at once then in the late 2010s Nvidia found a new demand for its chips with cryptocurrencies because gpus were also uniquely well suited to crypto mining this was obviously great news for NVIDIA but it made the business vulnerable to crypto related volatility which is why nvidia's stock tanked in summer 2022 fortunately for NVIDIA though only a few months after its crypto related dip the company's fortunes were transformed by the release of chat GPT and the subsequent AI boom and this is because gpus are also useful for both running AI models and perhaps more significantly training the models in the first place which involves tons of repetitive smaller tasks anyway the AI boom we've seen over the last 18 months or so has Julie created a massive demand for nvidia's gpus and revenues have beaten expectations at every earnings course since according to the most recent results from the first quarter of this year nvidia's revenues are up 262 % year on year and its profits are up 600% on top of that analysts are bullish about future revenues in March Nvidia revealed its new NextGen Blackwell chips which one claims will be twice as powerful for training AI models as the current generation of Hopper chips which were only released last year and hang also said that demand for these new Blackwell chips was already way out stripping Supply and preemptively promised another new chip next year the combination of eyering profits and bullish projections have fueled nvidia's meteoric rise but while nvidia's boom is sort of understandable given the hype around Ai and nvidia's dominant position in the GPU Market the fact that they've gone from essentially a second tier semiconductor firm known for giving Call of Duty better resolution to the most valuable company in just 5 years has got many investors asking is NVIDIA overvalued well the first thing we need to say is that this is is not investment advice and more generally don't take investment advice from YouTubers but well even if you were looking for investment advice this video wouldn't be very helpful because the best answer we can give to the question is NVIDIA overvalued is it depends for starters it depends on whether or not AI generally ends up being all it's cracked up to be we've already done a video on this so go and check that out if you want to know more but obviously nvidia's prospects depend on not just whether AI ends up being the Revolutionary technology that advocates claim it will be but also whether the companies buying Nvidia chips are actually able to use AI to capture value secondly it depends a surprising amount on geopolitics the main risk here is how American sanctions might affect nvidia's sales in East Asia American sanctions have already crippled nvidia's sales in China which previously accounted for about 25% of Revenue but Nvidia has been able to mitigate this damage by creating chips that fall just under the American sanctions threshold and re-rooting sales via Singapore which now accounts for about 15% of all sales however if American sanctions were to escalate this would become significantly more difficult on the flip side however if the US decides that Nvidia is strategically significant in its escalating Tech war with China it might end up receiving direct or indirect support from us or other Western governments becoming the West's deao arm supplier for World War GPT would be an immensely lucrative business for NVIDIA because unlike its current customers governments have basically zero in-house engineering knowhow which means that they'd have to not just buy Nvidia chips but its entire infrastructure the US has already signaled its willingness to support domestic chip making via the aptly named chips act which earmarks some 50 billion dollars in subsidies for american-based firms and even if it doesn't actively support Nvidia its strategic value might protect Nvidia from antitrust regulations but perhaps the main thing that nvidia's future depends on is whether it can main its near monopolistic position on the chips Market nvidia's ridiculous profit margins are a consequence of the fact that it accounts for something like 95% of all high-end AI chips now this is in part because nvidia's chips are just good but it's mainly because envidia also provides the infrastructure that surrounds the chips for stars Nvidia Now controls something like 80% of the chip networking Market but perhaps more importantly Cuda which is the framework Nidia uses to write software that makes best advantage of its chips has become the industry standard and it's not compatible with other chips by providing the best chips the best networking kit and the best software Nvidia has developed a sort of monopolistic Mo that insulates it from competitors because any serious Contender will need to beat it on all three now despite efforts from Big tech companies and direct competitors like AMD to provide Alternatives at the moment nvidia's grip on the market looks relatively secure and that's reflected through its stock price nonetheless corporate history is replete with instances of pioneering companies that start off with a well-defined monopoly get used to charging monopolistic rates and then come crashing down when competition kicks in a week or so ago we announced that we're working on a physical magazine which Dives deep into the upcoming UK general election but it turns out the designing a magazine isn't all that easy so I headed to skillshare to take a look through some of their design courses including the incredibly helpful course how to design a magazine and learn in design which helped me to well do both things this means unlike when I trying to learn in design for another Never released project a few years ago I was guided through the process quickly and efficiently 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Length: 9min 9sec (549 seconds)

Published: Mon Jun 24 2024