July 8, 2024
After becoming the world’s largest company recently, NVIDIA Corporation (NVDA) dropped. As of this writing, it’s third overall after suffering the biggest three-day loss in history, wiping out $646 billion in value. Yahoo!Finance called it an absolute bloodbath.
Still, NVDA gained over 750% since 2023. Less than a year ago, it was worth $1.5 trillion. Now it’s worth more than $3 trillion.
I’ve always been one to question everything (especially hot stocks). If you follow Warren Buffett and other great investors, you know they too advocate a contrarian mindset.
Lately, that means you may want to be skeptical of NVDA.
Consider how NVDA now has a larger market capitalization than the entire S&P 500 energy sector. NVDA is a fantastic business. But is it worth more than the entire S&P 500 energy sector?
The two top energy companies – Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) – are expected to generate a combined $53 billion in profits on $531 billion of sales this year. They have a combined market cap of more than $800 billion.
Meanwhile, NVDA hopes to generate a profit of $43 billion, yet has a market cap more than three times that of XOM and CVX combined. Seems odd.
And that’s only two energy stocks. Many huge energy companies are generating profits. So, it seems implausible that NVDA is worth twice as much as the entire S&P 500 energy sector.
Also consider how NVDA’s market cap surpassed that of the United Kingdom and France. Is one company worth more than two powerful nations? Perhaps only in a perfect world, which is where NVDA seems to be priced right now.
What goes up can come down quickly. And doing what everyone else is doing isn’t a recipe for investment riches.
All stocks mentioned in this post are for illustrative purposes only and not a recommendation by Dan White and Associates.