Last week, Nvidia made history by becoming the first company to surpass a market value of $5 trillion. But this is just one of the many ways it affects the global economy.
This chip manufacturer leading the artificial intelligence revolution is not only the world's most valuable company to date, but may also be the most influential stock in Wall Street history. Since the beginning of 2023, Nvidia has been the main driving force behind market growth, bringing huge returns to shareholders and earning billions of dollars for CEO Huang Renxun. Nowadays, its market value has exceeded 6 out of 11 sectors in the S&P 500 index, and even surpassed the market value of most countries' entire stock markets.
From a historical perspective, this is clearly a huge anomaly and a shocking move, "said Matt Miskin, Co Chief Investment Strategist at Manulife John Hancock Investments.
Just last week, Nvidia announced cooperation agreements with Nokia, Samsung Electronics, and Hyundai Motor Group.
Although the company will not release its financial report until mid November, the recent performance of large technology companies highlights their enormous growth potential.
Microsoft, Amazon, and Meta Platforms have all pledged to continue investing heavily in artificial intelligence. According to data compiled by Bloomberg, it is expected that the total capital expenditures of these four companies will increase by 34% in the next 12 months, reaching approximately $440 billion. These expenses are the main reason why Nvidia's projected revenue for the next fiscal year is expected to reach $285 billion, compared to only $11 billion in revenue for the 2020 fiscal year.
All these help to explain why the artificial intelligence based stock market foam has become so popular, and Nvidia is the center of this foam. Last week, Huang Renxun played down people's concerns about the runaway market frenzy at the company's annual GTC conference, and Jerome Powell, the chairman of the Federal Reserve, also refuted the idea of comparing the current situation with the Internet foam at the end of the 1990s at a press conference on Wednesday.
This trend will reach its peak and reverse, and we expect this situation to eventually happen, "Miskin said. However, currently, companies at the center of the artificial intelligence race are performing the best in terms of profitability, and this situation needs to change in order to achieve leadership succession. Nevertheless, the S&P 500 index seems to have put too many eggs in one basket
The following five charts document the process of Nvidia's market value soaring to $5 trillion and demonstrate its importance to the stock market:
As the world's largest company by market capitalization, Nvidia naturally has the highest weight in major stock indices (calculated by market capitalization). Its stock accounts for 8.5% of the S&P 500 index, exceeding the total weight of the 240 companies with the lowest market capitalization.
Howard Silverblatt, a senior index analyst at Standard&Poor's, said that this is likely the highest weighted record among any constituent stock, but he also pointed out that it is difficult to find daily data for a century. In mid-2023, Apple's weight reached a peak of 7.7%, while Microsoft also reached 7.4% later that year. At present, the total weight of the seven major technology stocks in the S&P 500 index exceeds 36%, with Apple Inc. ranking second with a weight of 6.9%.
Nvidia is not only the world's most valuable company, with a market value about $1 trillion higher than the second ranked Apple, but according to data compiled by Bloomberg, Nvidia's market value even exceeds the total market value of five countries' stock markets: the Netherlands, Spain, the United Arab Emirates, and Italy.
This Santa Clara, California based company's market value now exceeds that of all stock markets except for the United States, China, Japan, Hong Kong, and India.
Almost all Wall Street analysts are bullish on this stock, with about 91% of analysts giving it a "buy" or "buy" rating. The market generally believes that this upward trend will continue, and HSBC analyst Frank Lee recently raised the target price of the stock to the highest on Wall Street at $230- meaning its market value will approach $8 trillion.
However, there is also an analyst who holds the opposite opinion on the stock: Jay Goldberg, an analyst at Seaport Global Securities, has maintained a "sell" rating since April and has set a Wall Street low target price of $100. During this period, the stock price has more than doubled.
As the company expands, its sales growth rate often slows down due to a larger base. The average annual revenue growth rate for S&P 500 index companies with expected sales of $100 billion or more is 6%. As a result, Nvidia has become an exception, with its revenue expected to increase by nearly 60% this fiscal year.
Although this growth rate has slowed down from 126% and 114% in the previous two years, it still far exceeds other giant companies of Nvidia. The expected annual revenue growth rates for the second and third ranked companies - Microsoft and Apple - are 15% and 6.2%, respectively.
With the soaring stock price of Nvidia, Huang Renxun's net worth has also skyrocketed. According to the Bloomberg Billionaires Index, his net worth has reached $176 billion. This year alone, his wealth has increased by over $60 billion, enough to make him one of the top ten billionaires in the world. According to documents submitted to the US Securities and Exchange Commission in October, Huang Renxun holds approximately 3.5% of the company's shares in his personal name and family trust.
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