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NVIDIA (NASDAQ: NVDA) just became the world's most valuable company again after a rapid rise in its stock price caused it to jump Apple.
With its market capitalization now at a staggering $3.6 trillion, it is valued more than the entire London Stock Exchange!
But a sad anniversary is approaching in March. It will be one year since I sold my shares in Nvidia. Since then, the stock has risen 60% (according to Homer Simpson's famous catchphrase)!
To be fair, I assumed he was probably giving up bigger gains in the short term, in hopes of avoiding a massive pullback in the medium term. However, I didn't factor in the likelihood of a Trump comeback, tax cuts, deregulation and all that. In short, the rampant unleashing of animal spirits on Wall Street.
These spirits have been so contagious that even Europe is interested in harnessing artificial intelligence (ai) rather than simply regulating it. The Labor government said it wants to “Main ai in the veins” from the UK, although it is true that some of the use cases (such as detecting potholes) are less impressive.
Regardless, the growth trajectory of ai chip king Nvidia appears unstoppable once again. So Should You Buy stocks Again in 2025?
Calling the bot
Since I apparently sold Nvidia too early, my human brain is clearly flawed and fallible. So I asked ChatGPT's silicon ai brain for help.
He informed me that Nvidia's data center segment is growing rapidly due to increased adoption of cloud computing and artificial intelligence. The robot assured me that the “The current ai revolution is in its early stages“.
However, he warned that high interest rates, inflation and a possible recession in 2025 could hurt tech stocks. I would accept the first two risks, although the probability of a recession seems low. In fact, Torsten Sløk, chief economist at Apollo Global ManagementHe recently said he thought the chance of a U.S. recession this year is now 0%.
ChatGPT mentioned that stocks are usually highly valued. That's true, as the trailing price-to-earnings (P/E) ratio is 58.
On the other hand, he assured me that Nvidia has consistently generated strong revenue and profit growth. That's less true because at the end of 2022 (just before ChatGPT launched and when I last bought shares), the company's Q3 2023 revenue was down 17% year over year. Profits fell by 72%!
This highlights the cyclical nature of the semiconductor industry (which the ai assistant did highlight, to be fair).
Now, I had to push ChatGPT to get off the fence and give me an “opinion.” He did it, in a way, by saying that if I “We believe in long-term secular growth trends in artificial intelligence, machine learning and cloud computing, Nvidia could be a great addition to (my) portfolio in 2025.”
None of this has helped me much.
Buy?
tech companies are reportedly increasingly relying on synthetic data (i.e., composed of algorithms) to train ai after exhausting all human-generated data. But the challenges to overcome now include more hallucinations and even model collapses.
Will the big language models pay off and justify the mind-boggling expense? Or are companies grossly overspending? I still have a nagging feeling that Nvidia's sales, pricing power, and ultimately deep margins are unsustainable.
Because of these doubts I am not going to reinvest.
