To The Moon

图片 Since the beginning of this year, all three major US stock indices have hit record highs. While mega-cap stocks have contributed significantly to the rally, the real driving force behind the US stock market's surge has been the Wall Street trend of investing in the "next big thing": AI. The reason for the explosive growth of AI stocks is simple - AI can be applied to virtually every sector and industry. And analysts from PwC estimate that AI will add $15.7 trillion to global GDP by 2030. When it comes to the biggest beneficiary of this AI revolution, $NVIDIA Corp(NVDA)$ is second to none. In early 2023, Nvidia was worth $360 billion. However, as of the close of trading on March 4, 2024, the value of the stock market has exploded to $2.13 trillion, trailing only $Apple(AAPL)$ and $Microsoft(MSFT)$ . The skyrocketing share price of Nvidia reflects the company's dominant position in the high-performance computing data center market. Its A100 and H100 GPUs are expected to capture a significant market share in the AI-accelerated data center market this year. Meanwhile, due to overwhelming demand and limited supply, Nvidia's GPUs enjoy tremendous pricing power. Although production of A100 and H100 GPUs is expected to increase this year, the growth in data center sales is primarily driven by rising chip prices. But when everything seems too good to be true, we should be cautious. Is AI and Nvidia doomed to suffer the fate of the "next big thing" bubble? Looking back at the past 30 years on Wall Street, we find that the market has never been short of investment "carrots" promising the "next big thing." Once everyone jumps on the bandwagon, these stocks start to crash, completing a round of harvesting. Of course, there will always be some people saying that this time is different, but history tells us that all bubbles eventually burst. Here are some famous "next big thing" bubbles from history: The dot-com bubble burst in 1999-2002 The genomics decoding bubble burst in the late 1990s The sinking of the US real estate market in 2008-2009 The crash of the Chinese stock market in 2007 and 2008 The waning enthusiasm for 3D printing around 2015 The rise of electric vehicle stocks Blockchain technology The surge in prices of AR and VR stocks driven by the metaverse concept in 2021 All of these "next big thing" investments have one thing in common - investors' expectations for new innovations or trends are way too high, completely detached from reality. And this time, AI is probably no exception. While AI is hot now, most companies are still exploring how to use this technology to boost their sales and profits. If the ideal doesn't translate into real money, a bubble burst is inevitable. Specifically speaking, when it comes to Nvidia, the increased production of A100 and H100 GPUs may lead to a decrease in scarcity and prices, ultimately resulting in a decline in the company's gross profit margin. In addition, the company faces increasing competition from other chip companies such as $Advanced Micro Devices(AMD)$ and $Intel(INTC)$ . Meanwhile, its four major customers - $Microsoft(MSFT)$ $Meta Platforms, Inc.(META)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ - are also developing their own AI chips. Lastly, we can't ignore Nvidia's valuation. While the company's current PEG (Price-to-Earnings relative to earnings growth ratio) is still reasonable, its static price-to-sales ratio is as high as 38. Such a high valuation has only been reached by a few stocks like Amazon and $Cisco(CSCO)$ during the peak of the internet hype, and that lasted for only a few days.