A chip war could be a structural headwind for Nvidia. The company recently joined the trillion dollar club for valuation due to the artificial intelligence frenzy (mania).
US AI Export Curbs Threaten Nvidia
The NASD exchange has been the strongest this year, rising in double digits since January. Nvidia and Apple have led the charge upward. So how much of a mania is this?
A measure of investor enthusiasm is the price earnings ration. This is a measure of how many dollars an investor pays to buy one dollar of earnings of a company. The entire S&P trades around 20 P/E. Hewlett Packard trades at 11. Apple trades around 32 earning just over $5 per share.
Unlike the dot.coms at least NVDA does earn some money, $1.97 per share. But its P/E is a nose-bleed 206.76, wow. It topped at $437 this month. In the last two days it has dropped 3% now trading at $406.37. Hmm, looking toppy perhaps?
Tesla has risen phoenix like this year. Starting at $140 it now is priced at $255. Its P/E is a hefty 79 but at least it claims to make $3.21 per share.
Our government is now picking winners and losers, with of course strings attached. Obama had his Solyndra, a solar company he graced with some $500 million. It is now bankrupt. Trump endorsed the Lordstown Motor Company. It reopened a closed GM plant in, yes, Lordstown, Ohio. It merged with a Special Purpose Acquisition Company, a money find in search of an idea. The last time companies raised money for a yet to be announced purpose was during Tulipmania in Holland in 1621. This puts more perspective on just how manic a period we are in. The firm symbol RIDE started at $150 in 2018-19. It then raced to $400. At that point it had not sold a single vehicle but was valued higher than General Motors. Various problems ensued. Today it is in Chapter 11 bankruptcy trading for $2.25.
The federal government just ‘lent’ Ford $9 billion for its electric vehicle program. Numerous union member and other requirements were tacked on. Ford just reported a $3B loss in this program. But Ford is certain it will recoup this loss and more by 2026-27. Recall this is the company that built a race car from scratch with its own money in the 1960s to beat the world champion racer Ferrari. What a change!
This is mis-allocation of capital outside the market arena. Politicians are front page in announcing these success stories. But funny thing, where is the photo-op from bankruptcy court?
Crude oil trades quietly around $70, not much else to say now.
