For some reason, retail investors look at the price when buying a car, but not at the price of a company when buying a stock. At the same time, institutional investors focus on the near-term due to misaligned incentives. As Warren Buffet put it in 1985, institutional investors can't wait for a good long-term deal or people will start shouting "swing you bum" [1]. So, the whole system is in some kind of crazy frenzy of pumping up the price until it burst. If it bursts, the institutional investors are the first to leave or obtained their fees.
Long story short: I think you understand it perfectly well. Buying Nvidia at a 200 PE ratio makes no sense from a valuation standpoint.
This because these are very different processes from the buyer's perspective:
A retail stock investor primarily decides to spend $x on some ticker, and then they divide $x by the current share price to determine how many shares to buy (or they buy fractional shares if their platform supports it). So they can "own" NVDA by paying whatever amount they choose.
This is the opposite from buying a car, where the buyer has to pay the full sticker price all or nothing.
Similarly the AI thesis for NVDA has been clear for multiple years, even if it got obscured a bit by the Crypto thesis. Deep learning and ML has been an obvious trend that requires increasing amounts of GPU power since at least 2017. There are basically two companies manufacturing GPUs and Nvidia is one of them. It shouldn't take a genius to have picked that stock.
Frankly we should amend the old quote about the barber recommending a stock to be about Wall Street recommending a stock. By the time the finance bros catch on to a trend, it's too late for the tech bros to profitably invest in it.
Partial side note: obviously the FOMC has a lot to do with investment flows, but I’ve found that the tax system is just as relevant or more so in market distortions, but it is poorly understood, rarely observed, and never considered for alternative possibility, like the water that our economy swims in. For instance, the combination of 401k and double taxation killed income investing. Also, capital gains tax and long-term preference deters sale in a pump, and actually works the other way to prefer short-term selling of losses, so the net effect is to add to the positive feedback. Every tax situation is a comparison of speculative gain and loss on an efficient market hypothesis prior, versus a guaranteed tax loss.
Could they do that? Possibly. But I still think it is too much hype.
Would think OpenAI and others would tire of buying chips from NVIDIA at some point well before that and make their own (like Google does).
Honestly this stock market move makes it look like Google should just announce "hey we're putting the TPU on sale for general availability" they'd jump 25% overnight.
My experience has been that it takes not insignificant effort to convert training scripts and then some weird unexpected bug takes a while to figure out, I’ve heard similar things from peers in academia.
Additionally, at least in early 2023, PyTorch had a substantial throughput reduction on TPUs so you’d probably need to use Jax (or god forbid TF) for efficiency sake.
Granted, I’ve heard some of the PyTorch XLA issues have since been improved.
Regardless, the H100 currently significantly outperforms TPUv4 in throughout on transformer loads, we’ll see what TPUv5 looks like to be fair but it’s not a given that Google/Amazon can outpace Nvidia in manufacturing and chip design when this is their core product and they also have amazing engineers + a large open source community building around CUDA.
But as long as you're on the first half of the bubble, you're okay.
"The market can stay irrational longer than you can stay solvent."
- A. Gary Shilling (https://quoteinvestigator.com/2011/08/09/remain-solvent/).
Simple example is that i can buy a put option in some company. If the stock price falls below that point, I buy shares and sell them to the option writer and make a profit. My maximum loss is limited to the amount I spent on the option.
Likewise the put seller has not taken unlimited risk - their risk is limited to the cost of the shares they’ve offered to buy at.
https://s201.q4cdn.com/141608511/files/doc_financials/2024/Q...
