It is without a doubt the hottest stock of 2023. The
trillion dollar club getting a new member today, Nvidia
becoming the first ever chip stock to reach that milestone an
astounding run for a stock that has just simply soared. Nvidia's
new entry into the trillion dollar valuation club just the
latest milestone in the AI boom we've seen this year. And now
it's powering the broader market gains this year. The Magnificent
Seven, they are all up between 35 and 180% this year, and in
May alone Alphabet and Amazon they're up 15% each, Nvidia
nearly 50. Well, the market has had so much to grapple with over
the last year. They've been worried about a looming
recession coming, they've had to deal with a high level of
uncertainty from the Fed and all of the interest rates that we've
seen come down the pike from there, and just kind of looking
at all of the uncertainty. The geopolitical uncertainty with
Russia, and then you had these debt ceiling negotiations in
Congress. So this was sort of this bright light that got shown
into the markets, gave investors a sense of, once we get past all
of this, here's where the future is going to be. But will the AI
boom be enough to save the stock market and the US economy at
large?
What happened with Nvidia was not just the fact that it had a
blockbuster quarter, but it guide it even stronger ahead. So
the message to the market was, the future really is looking
even stronger than the present. When ChatGPT came out in
November, that was a earthmoving moment for the industry. And
then Nvidia was able to come along and basically quantify
that and say, we not only had this huge quarter last time
around, but we're looking at $11 billion dollars in sales over
the next quarter.
I think the opportunity is enormous. I think we are at a
paradigm shift in terms of how data centers and other things
are architected.
We're seeing incredible orders. to retool the world's data
centers. You're seeing the beginning of, you know, call it
a 10-year transition to basically recycle or reclaim the
world's data centers, and build it out as accelerated computing.
So this really took everybody off guard and the market, shares
went crazy. Nvidia shares have continued to climb since then.
They've had a blockbuster year, they've had a blockbuster 12
months. And it now looks like it's paving the way for even
greater growth ahead.
Investors are now pouring money into AI stocks and the companies
that could benefit from the new technologies. The problem,
though, is that most of that money is going to a select
number of companies like Apple, Nvidia, Microsoft and Tesla. The
fear is that this could all lead to a stock market made up of
just a few winners, and many, many losers.
Closing out the month of May in the green, the NASDAQ did post
its first three month win streak since 2021.
Well, I think you do need some perspective here. One of the big
things just to realize is that in terms of broad market
performance, it hasn't really mattered a whole lot. The S&P
500 and the Dow really didn't move very much at all on this
news. It made a pretty good impact on the NASDAQ, of course,
where those tech stocks are focused.
There's no question that the indices, the headline indices
have been amazingly resilient. But again that's, if you take
out seven stocks, in many cases, you're down on the year.
The S&P 500 has basically been the S&P Seven, we've just seen
stocks like Nvidia, Microsoft, Apple, Amazon Meta, Tesla. Those
are the companies that are pretty much calling all the
shots here now. And this seems to be more and more a stratified
market.
Pay really close attention when we call for a turnaround in the
tech buying environment, and where it's really moving from a
measured environment to an aggressive environment. And I
already will tell you what the catalyst of that will be, I can
see it with our customers, it's artificial intelligence.
Nvidia's rapid success hasn't yet spilled over to the broader
stock market.
What we saw initially from Nvidia is that that stock did
very well, some of his competitors, namely Intel, took
a real beating as Nvidia went up, so they're going to be
winners and losers in this space. What you would hope for
now is that as technology bleeds its way through the economy,
some of those gains, there's incredibly outsized gains that
these huge companies have seen, start to filter their way
through the rest of the market and rest of the economy.
I think that the big idea here is that this may be isn't the
big story over the next couple of weeks or the next couple of
months. But it's certainly the story over the next number of
years, that companies on all levels are going to have to
figure out how they're going to navigate their way through this,
how they're going to use this technology best.
There definitely will be winners. There will be companies
that are in this center of it , that'd benefit from it.
Obviously Nvidia is going to be a main player in that area.
We are clearly early, this has just begun. And if you're
looking out three years, five years, 10 years, I remain
convinced that the upside is still considerably like more,
much more in front of us and it is behind us.
For some investors and analysts, though, there is fear of a
looming bubble.
There's no question I think that we have a price bubble. And, you
know, we had a price bubble with the dot-coms and the Internet
back in the late 1990s.
It feels a little bit overdone. And I think you look at the rest
of the market, whether it's the equal weighted S&P 500, cyclical
stocks, the dollar, commodities, it's all telling you that a
slowdown is coming. So, I think the broader market is much
weaker than the headline would tell you.
One of the things I think you have going for you in this
environment, that a lot of those bubbles are typically fed by
very loose policy, very loose fiscal and monetary policy. We
don't really have that so much right now. We just saw this
bruising debt ceiling battle, in which congressional leaders are
trying to put some caps on that spending. We see the Fed raising
interest rates, we see them reducing their balance sheet. So
you don't have that free money out there, that cheap money out
there that, that people so often used to chase bubbles. So it's a
little bit more measured of an approach here.
So, what does this all mean for retail investors?
I think one of the biggest things that investors have to
grapple with here now is valuation. When you see those
big gains from Nvidia, and of course all of those other
companies that we talked about, you start to worry about okay,
when does this start to get out of hand? When are the pullbacks
going to come?
You know, supposedly the high tide lifts all boats. This is a
very selective tide. And I'm not ready to throw out the confetti
yet.
You've got to be really leery of chasing this. So I think you
know, you never want to buy at the top. And that's what you
might be doing right now if you jump in there and try to ride
this wave.
I think it's more likely that these recent winners come down
to meet the laggards in the rest of the market.
If the tech stocks do start to pull back, I do think that there
are going to be a lot of retail investors who might just view
that as a buying opportunity. So if they do come back it actually
helps the market in a way, because it lowers valuations and
it creates more attractive entry points for, for people to come
on in there.
Nvidia's rapid rise to a trillion dollar company was a
signal for investors that the AI boom is for real. This is Nvidia
CEO Jensen Huang speaking during a commencement speech last month
at National Taiwan University. You're at
the beginning, at the starting line of AI. Run. Don't walk.
Remember, either you're running for food, or you are running
from being food. And oftentimes, you can't tell which. Either
way, run.