From Breakingviews: Nvidia's ascent to mega-stock status has been fast and choppy. It's been propelled by two surges – a supply shortage and an AI boom. That may give it a more tenuous grip in the 13-figure club, write rob_cyran and johnsfoley
While Nvidia has been around for ages – it was founded in 1993, making it older than Amazon and Alphabet – its valuation growth of late has been prodigious. The company’s revenue has expanded at an average annual rate of around 20% for decades. But demand for Nvidia chips got a boost during the pandemic, driven by demand among cryptocurrency miners. A global chip shortage propelled Nvidia still higher. And now an AI boom has really put a rocket under Nvidia’s valuation.
What goes up quickly can come down quickly though. Nvidia trades at 40 times estimated EBITDA over the next 12 months, about twice as much as its peers. Should growth or exuberance take a hit, it could drop out of the trillion-dollar club. Unlike Apple or Google-owner Alphabet, the brand has little consumer cachet to fall back upon. Because it mostly makes hardware, unlike Amazon or Microsoft, supply-chain disruptions are an ever-present risk.
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