“Jensanity” Takes Hold And Yet AI Reality Also Sets In.
The seasons change, the years pass but Nvidia's share price only seems to go up.
Heading into its 10-for-1 split, the chip designer's share price surged well over $1200, rising by nearly 5% and approaching the $1300 target that seemed outlandish even just a month ago.
After rising 30% in the month beforehand, some folks (guilty!) thought that, in the aftermath of the split, the share price might take a breather. Of course that has proven wrong. The stock has continued its rise - it effortlessly tacked on nearly 10% this past week.
What does this mean?
It means Nvidia is now gigantic stock, for one thing.
The company's market cap is now well over $3 trillion. It has easily supplanted Apple as the 2nd most valuable company in the world. In reality, Microsoft's crown as number 1 is not just vulnerable but a near certainty.
Adding trillions of dollars of market cap also means that Nvidia is now, somehow, broadly relevant. This niche designer of chips for computer games has now leapt from the financial pages and tech hardware realms to become a cultural phenomenon.
It is still bizarre to say but Nvidia is cool. I guess that is what a bulletproof stock price can do for you. But the thing is that it isn't just the share price.
There are almost too many headlines too count. Nvidia's CEO, Jensen Huang has been in Taiwan for the last 2 weeks where his every move has been followed with an avidity normally reserved for only sitting royalty or a pop megastar like Taylor Swift.
It all culminated at a software conference called Computex where, among other things, the Nvidia CEO found the time to sign the chest of some particularly ardent fans.
The historian Daniel Boorstin claimed that a celebrity is “a person well-known for well-knownness.” Jensen Huang is likely reaching those heights. He has crossed the line from being a President and CEO to being well known for his company's stock performance.
The insanity around his trip to Taiwan was, in many ways, the ultimate "local boy made good" tale but if you told people 20 years ago that a Taiwanese immigrant turned CEO of a semiconductor designer in California would be treated like a modern day Mick Jagger at a global semiconductor conference....
For any doubters look no further than the new term "Jensanity." The global press doesn't coin new monikers for just anyone....
The photos also tell an incredible tale:
I am not sure Computex's mania will be viewed as peak AI mania but it will definitely be one of the more memorable moments for Nvidia. "Jensen in Taiwan" will bring back powerful memories for a lot of people and not just shareholders.
While Nvidia's stock continues to cruise, however, there have been some dark clouds gathering in the "AI space." Salesforce, a major software company was one interesting example. The San Francisco giant came out with its earnings and revealed that against expectations, software growth is shuddering to a halt.
The most important development is that Salesforce isn't alone. Tech company after tech company has delivered similar bad news. Either the expected growth from AI investments aren't there or the costs of attracting are prohibitively expensive.
Either growth is not happening or profits are poor or both. This is a tough place to sit if you want to stay in business let alone make the case that the "artificial intelligence" trend is more than just hype.
Unfortunately, the latter view is becoming common place. The Wall Street Journal even wrote an article on "The AI Revolution Is Already Losing Steam."
So, are we heading to the moon or has this hype cycle already crescendoed and we are just waiting for the other shoe - in this case Nvidia's profits? - to finally drop?
Which is it?
The first thing to say is with the expectations baked in to the current Nvidia share price, it won't take much to disappoint the otherworldly expectations.
Remember the company's sales do not even need to decline but rather the rate of growth could even slow and some investors could begin to take fright.
That second derivative is a very, very small shift when you think about it. So, be very, very aware. We do not recommend it but if you ARE YOLO'ing (look it up) Nvidia right now, as the kids say, please sleep with one eye open and be ready to move exceptionally quickly.
Besides the fact that we do not recommend doing this and sentiment could shift very rapidly, what else is there to say?
We would make three points:
The first is that we may not know quite how large or sustained the investment boom in artificial intelligence will be but we are starting to get a sense of those who are NOT benefiting.
The second is that this boom, while very serious, is also very concentrated.
And lastly, what is remarkable is how restrained the wider market is when it comes to AI experimentation.
On the first, we have been recently finding out that some of the hoped for AI winners are, in actual fact, not winning at all. As we already mentioned, the business software firm Salesforce has been emblematic of this trend.
The company recently reported earnings which were disappointing to say the least. The Silicon Valley giant missed revenue forecasts for the first time since 2006. A host of other data was also weaker than forecast.
The punishment for one of the fastest growing software companies in the world was predictable and swift. The stock tumbled ~20%. It hasn't recovered.
It isn't just Salesforce either. Software company after software company have disappointed similarly: Adobe, Workday, Snowflake, ServiceNow, many of technology's highest software flyers have been laid low.
It isn't just that they aren't yet hitting AI paydirt in their own businesses, it is their own revenues and profits are falling.
The reason for that is incredibly important to think about. For that we turn to the AI winners.
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