Lambert here: I don’t play the ponies, so Richter’s charts, as such, have little charm for me. That said, the money sloshing into AI is so ginormous that most of it must be stupid. And at some point, you have to wonder — although we don’t seem to, even after the dot.com bubble, the Great Financial Crash, and whatever it was that fastened facehuggers like Meta and Uber onto the body politic — whether turning over society-wide capital allocation to stupid people driven by greed, fear, and the stories they tell themselves is optimal.
By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street.
Nvidia is special because the dollars are suddenly so huge – a hair over $2 trillion at the open on Friday, and just a little below $2 trillion at the close. Over the past 12 months, market cap has spiked by $1.46 trillion, including the biggest-ever-for-any-stock one-day spike of $277 billion on Thursday, on exceeding revenue expectations by $2 billion.
There are other charts that look even wilder because these are crazy times, and all kinds of stuff has been spiking and in crazy ways. And Tesla’s chart used to look like this too, before the shares plunged 70% in 2022. Crazy spikes like this generally don’t lead to a permanently high plateau. But Nvidia is now huge, and it’s floating on top of a mindboggling AI-mania.
Nvidia has always been a volatile stock because something always derails the latest GPU-to-the-moon narrative. For example, between November 2021 and October 2022, Nvidia shares plunged by 65%, barely dodging our Imploded Stocks pantheon (minimum requirement: -70% from high). And now the numbers are much bigger. We show the market cap in the chart because the dollars are now so huge that they really matter for the overall market:
The utter mania around generative AI that has suddenly gripped corporate America led to an explosion in sales of high-dollar and high-margin systems of GPUs for Nvidia.
Just about every major company is touting its progress with AI – for now, mostly just spending money on it – and periodically there are hilarious stories about generative AI’s not so intelligent work. I mean, can you fire AI if it screws up badly enough? Or is that suddenly a human’s fault?
The amounts of money thrown at generative AI from all directions are just vast. And Nvidia is getting its share of the pie. Nvidia’s revenues might hit $100 billion in 2024, knock on wood, up from $27 billion in 2022. And it just might, or might not, surpass Tesla’s revenues, which were already $97 billion in 2023.
These Price Spikes Are a State of Mind: See Tesla.
So we just accidently remembered that Tesla’s stock too went through these WTF spikes until it hit $414.50 on November 4, 2021, and then plunged 70% over the following year and was inducted into our pantheon of Imploded Stocks in December 2022, when its shares hit $123, after which they dropped some more. These spikes unwind brutally.
Then came the big rally through mid-July 2023, and then the shares spiraled down again, and today they’re down 54% from the peak in November 2021, and they’re still overvalued though Tesla has become a much bigger and a much more successful automaker since the all-time high in November 2021.
Since that all-time high, Tesla has become very profitable. Its Model Y has become the #1 best-selling model in the world, blowing away Toyota’s Corolla, and it has become the #2 best-selling model in the US, just behind Ford’s F-series truck. And since the all-time high, Tesla opened two new factories, one in Germany and one in Texas, and production and deliveries have soared, and it’s eating market share of the legacy automakers in big gulps, and despite its already substantial size, its global deliveries jumped by 38% in 2023.
And yet, over those two years when Tesla’s business continued to boom, Tesla’s market cap plunged by over $600 billion. Turns out, these WTF spikes are a state of mind. And when that state of mind changes, the spikes unwind.
How Long will the Nvidia Narrative Last?
Will Nvidia have a monopoly on AI-suitable GPU systems? Will no one figure out how to make something competitive and sell it a lower price? And will Meta, a gigantic customer of Nvidia’s GPU systems, suddenly discover that it has all the GPUs it’ll need, just like it had suddenly discovered that it had way too much office space and way too many employees? Companies are kind of weird in what they suddenly discover. All kinds of things can change that might rattle that overstretched state of mind – same thing that Tesla went through to get off its WTF spike.
