I'm honestly not asking this rhetorically. Like, just factually…I had just turned 18 around the year 2000 and started investing. A company worth $100 billion was considered huge. A trillion dollar company would have had to be some sort of world-wide, state-sponsored monopoly (like Saudi's Aramco). A $2.5 trillion company? People would have laughed you out of the chat room for suggesting such a thing. How can Nvidia legitimately be worth that much?
Nvidia is worth over $4T. Adjusted for inflation, that's $2.5T in the year 2000. How is this not a bubble?
byu/kugelblitz_100 inAskEconomics
Posted by kugelblitz_100
1 Comment
How do you define a bubble? How do you determine what a company is “legitimately” worth? The standard theoretical approach to the value of a company is the net present value of future earnings.
NVidia is valued at $4 trillion by the market and is expected to make $100 billion this year. If we expect it to make $100 billion every year, it is definitely not worth anywhere near $4 trillion. But investors have seen it grow incredibly fast and expect it to continue to grow as the AI boom transforms our economy. How fast? If its earnings grow at a little over 20% each year, that $4 trillion value is justified. If it averages 30% growth, which is far slower than it has grown the last couple of years, it is a bargain.
So is it a bubble? I don’t know because I don’t know how much higher earnings will grow and how quickly that growth will be. I used to think that Apple and Amazon were overpriced, but their earnings growth ended up making them look like they were bargains.
I don’t spend any time worrying about it and just buy total market index funds. I’ll own the best and worst performing stocks and get on with my life.