Why Are All U.S. Tech Stocks Falling Except NVIDIA?

2024 年 5 月 30 日 | English Blog

I don’t understand why some people use market capitalization to gauge the potential for a stock’s price to rise. Statements like “If NVIDIA’s stock price rises again, its market cap will surpass Apple’s!” make me curious. Why can’t it surpass Apple? Is there a ceiling on market cap set by Apple?

In fact, NVIDIA’s market cap is not far from Apple’s. NVIDIA’s market cap stands at $2.8 trillion, and if its stock price rises by another 3%, it will catch up to Apple’s $2.9 trillion market cap.

One company is an aging giant, while the other is a rising star. As I’ve said before, it’s like a relay race between Apple and NVIDIA, with each taking turns in the lead every ten years.

If you’ve noticed, among the many tech stocks, only NVIDIA’s stock price often rises against the trend. Other tech stocks like Microsoft, Google, Meta, and AWS tend to follow the market. When the market goes down, they go down too. Only NVIDIA stands out, rising instead of falling. Why is this?

Let’s first talk about the other tech stocks. Over the past year, they have heavily invested in AI infrastructure, which involves significant expenditures. Although they have strong cash flows and are not afraid to make these large capital expenditures, these costs will be amortized over the next few years as depreciation. If business doesn’t go well in the coming years or if they bet wrong on AI infrastructure, their profits will take a hit, especially since the global economy hasn’t improved much due to high interest rates. Thus, these companies face certain risks, and when the market falls, they fall too.

NVIDIA, however, is different. It is currently the biggest beneficiary of the AI boom among tech companies. AI infrastructure primarily relies on two core components: the development of neural networks and the need for massive amounts of GPUs. Even if companies want to develop their own GPUs, they still have to buy from NVIDIA. Therefore, NVIDIA is currently enjoying the best business environment! A significant portion of the AI infrastructure spending by tech companies translates into revenue for NVIDIA, which explains NVIDIA’s strong profitability over the past year.

This also explains why other tech stocks are falling while NVIDIA’s stock is rising. In fact, one could even generalize that NVIDIA’s gains are equivalent to the losses of other tech stocks.

However, if we follow this logic, NVIDIA’s stock price will peak when other tech companies complete their AI infrastructure.

I believe that day is not far off, possibly around the end of next year.