Nvidia became the first company in the world to exceed $5 trillion in market capitalization, instantly swiping the screen and sparking heated discussions. How exaggerated is this number?

It is bigger than all its major rivals – AMD, ARM, ASML, Broadcom, Intel, Qualcomm, TSMC, etc. combined; It even exceeds the total market value of the entire industry of utilities, industry, and consumer goods in the US S&P 500 index; In the past six months, the stock price has risen by nearly 90%; The current market capitalization has exceeded the sum of the largest companies in the stock market of Germany, France and Italy.

Nvidia's stock price has now almost become a "thermometer" for the AI boom - as long as AI is popular, it will rise. But many people are worried that this $5 trillion is the beginning of a new era of AI or a huge bubble?

Why did Nvidia break through $5 trillion?

Why can Nvidia's market value soar all the way when it loses the Chinese market? Industry insiders generally believe that there is only one core reason: the global AI boom has broken out, and Nvidia is almost the only "shovel seller".

Just like in the gold rush, the most profitable is not the gold panning, but the shovel seller. Now the global technology giants are frantically "digging AI", and Nvidia's GPU is their most inseparable "shovel".

Four major reasons, supporting the market value of 5 trillion yuanA technology observer familiar with Nvidia summarized that it mainly depends on these four points:

AI chips are the "core infrastructure"
Technology giants such as OpenAI, Microsoft, Google, Meta, and Amazon are fighting an "AI model war". Training large models such as GPT-4 and Llama requires massive computing power - and at present, only Nvidia's GPU can handle it.

Supply exceeds supply, and it is completely a "seller's market" The
global demand for high-end chips such as H100 far exceeds the supply. Many companies have to place orders months or even a year in advance, and they have to pay a large deposit in advance. For example, OpenAI used about 25,000 GPUs to train GPT-4, and Musk's xAI hoarded tens of thousands of H100s.

Explosive growth
Nvidia's data center business (mainly AI chips) revenue has increased by more than 200% for many consecutive quarters, and profits are also surprisingly high. This "money printing machine"-like money-making ability has made investors crazy for it.

The future layout is broad
Not only does it sell chips, but Nvidia is also expanding into new fields such as AI software (such as DGX Cloud), autonomous driving, robotics, and edge computing. Investors believe that its growth story has just begun.

If you lose the Chinese market, why can it still rise?

Many people wonder: Isn't it a major blow that the United States restricts Nvidia from selling high-end AI chips to China, and its share in China is almost "zero"?

In fact, the "zeroing" here should be put in quotation marks: it mainly loses the share of the highest-performance AI chips (such as A100 and H100) in China's data center market; but its gaming graphics cards, vehicle chips and other products can still be sold; And this is only a current limitation, it does not mean that it will never be able to enter

What's more: the global demand for AI is too great!

Although China is a "gold mine", technology giants in the United States, Europe and other places are even more "arrogant" and rush to buy Nvidia's chips. Orders from these new markets have been enough to make up for China's losses and even bring more growth.

Nvidia CEO Jensen Huang has been calling on the U.S. government to ease export restrictions. He warned that if the United States does not allow Nvidia to sell chips to China, China will create its own substitutes, and eventually the United States may lose this important market permanently. "China is a very important market." Huang emphasized

Nvidia's $5 trillion is not based on hype, but the result of real AI demand + technical barriers + performance explosion.

Although it is affected by policies in the short term, its global "shovel seller" status cannot be shaken. As long as the AI boom does not subside, its high valuation will be supported

$5 trillion: Is it a new starting point, or a bubble top?

The optimist said: It's worth the price!

The chief investment officer of investment firm Bokeh Capital believes that Nvidia is now playing a "championship parade" - it fully deserves this glory. The AI boom is far from over, and the bubble shows no signs of bursting. After all, it is the only company that can build an "AI engine".

Capital.com analysts pointed out that not only Nvidia, but the entire stock market is reaching new highs. There is realistic support behind this: easing inflation, the Fed may cut interest rates, and market sentiment is optimistic. So Nvidia's rise is not an isolated phenomenon.

Doubters say: Beware of bubbles!

But many people are also worried: Is the current valuation too high? There are indeed many challenges, and the implementation of AI is not so easy. Large models consume a lot of power and cost high, and many companies cannot afford to use them; there are more and more regulatory and ethical issues, and the road to commercialization will not be smooth sailing

There are more and more competitors, and old rivals AMD and Intel are desperately catching up; new players such as Qualcomm also want a piece of the pie; More importantly, in the context of China's "independent and controllable", local chip companies such as Huawei and Cambrian are rising rapidly, and may steal the market in the future.

Valuations may overdraw the future, market research firm BCA Research warns: Many people overestimate the short-term profitability of AI. Although AI can definitely improve productivity in the long run, this does not mean that the current market value of 5 trillion yuan is reasonable. The current stock price may have included the "expectations for the next ten years" in advance

Jingtai's view: Nvidia's $5 trillion is not only a true embodiment of technical strength and market demand, but also contains huge market expectations and speculation.

If AI continues to explode, it may just be standing at the beginning of a new era; But if the growth is not as expected, or if competition intensifies, then the "superstar" may also face the risk of a sharp correction.

In a word, it is very powerful, but no matter how powerful the company is, it cannot bear the "excessive price". Currently, its price-to-earnings ratio (that is, the multiple of the stock price relative to the expected profit in the coming year) is about 33 times. The average of the entire U.S. stock market (S&P 500) is only about 24 times. In other words, investors are willing to spend more money for every dollar they earn for Nvidia.

This "ultra-high valuation" means that the market expects very high from it. This price is only reasonable if its profits continue to grow rapidly, or even make more and more money.