It’s going to get bumpy

NVDA earnings for the 2Q were published yesterday after the market close. They were impressive, in almost every aspect, perhaps with the exception of the data centers revenue. But investors are demanding more from the company that is building the backbone of AI, at global scale. The chart below shows past and expected revenue growth for the company and, as you can see, even though analysts expect 50%+ growth for the next three quarters, it may not be enough to justify its 57 P/E. In the end, that’s the question: how much should an investor pay for the expected earnings growth. And it appears that the company has reached that tipping point. It may get an additional boost, as per the earnings call, if they are allowed to sell chips in China, but that may be a double edged sword. The destiny of NVDA is extremely relevant these days for global markets as the level of concentration in a few stocks, being this one the poster child, is unprecedented. It weights 8%+ on major indices but it’s also the cornerstone for its magnificent peers, which collectively weight 34% on the S&P500. Fasten your seatbelt, it’s going to get bumpy.

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