And in case of Nvidia it's even much worse.
In order for Nvidia to be worth a decent premium over the yield of some index fund like VOO (you're taking much more risk), it has to grow in the order of 42% per year for a decade in revenue.
There's no such amounts of money to be spent in hardware, it's lunacy.
Not even the other tech giants combined have even a small part of the money required for such growth.
And on top of that, this is a very dynamic sector where any competitor, technological breakthrough can make you the new IBM.
Prices like Nvidia were highly overvalued but understandable with a stretch of imagination of 25% growth for a decade when it was 300$. I could almost see it and would've still concluded it was an unlikely outcome and risk/reward ratio was not there.
But now we long past that mark and in the territory of insane expectations and high premiums paid with a very high risk.
Oh, money there is. NVIDIA is selling shovels to hordes of people searching for gold... first it was cr*ptoc*in miners, now it's billion dollar companies in the search for AGI. But unlike shovels that anyone with access to iron, a fire and a hammer can make, there are only five companies on this planet that can design the chips in the first place: Google and Amazon (who don't sell to outsiders), Intel (who has other, more pressing issues than to design AI training accelerators), AMD (who has the chops on the hardware design side but seems to be completely unable to get the software side stable enough that people would be even willing to look at it) and NVIDIA.
And to make the issue worse, there are only three fab houses who can physically manufacture the chips: TSMC, Samsung and Intel... TSMC is all but booked out already, Samsung is nowhere near their level, and Intel both doesn't do fab jobs for outsiders and has completely botched their new nodes for years now.
There is just no way anyone can outsmart NVIDIA at that point, and demand is only going to increase in pretty nasty bidding wars.
Spot on. Nvidia can't even meet all existing demand right now.
https://fortune.com/2024/02/21/nvidia-earnings-ceo-jensen-hu...
That's all of Microsoft, Apple, etc, etc revenue combined all being spent in GPUs at 50% margin. It's not realistic.
You're taking a bet where risk/reward is just against the investor.
Currently if NVDA can double their earnings next year they’d have a P/E ratio similar to MSFT. I think many investors believe they can reach this target hence the high valuation.
Whether NVDA will continue to maintain this level of profit for the coming decade is another issue.
Any of your arguments has been done about leaders like Cisco, Intel or Tesla that balooned to valuations that did not meet reality regardless of those companies in fact doing well, the revenue and growth expectations were just asinine and void of basic math.
There's no such thing as infinite demand growth and infinitely deep pockets, let alone margins staying that good for so long (and again the aforementioned companies are examples of the phenomenon).
You will likely do much better investing in VOO today than buying Nvidia, let alone having a much better risk/reward ratio.