Below are some of the most interesting things I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
STAT
This week, all eyes were on Nvidia and for good reason. As Cameron Crise writes, “Nvidia has singlehandedly accounted for more than 1/6 of the rally in the SPX off of its April low, and in so doing has posted the highest four-month Sharpe ratio in the company’s history.”
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The stock has set some “Ncredible” milestones in the process. “Over the last year Nvidia’s market cap has overtaken the total valuations of the main stock indexes in the UK, France and Germany. It’s also overtaken the entire S&P 500 energy sector to whose members will fall the task of powering the machines that use its chips,” writes John Authers.
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And that last comparison may be the one that matters most. As The Economist reports, “Fittingly for an unstoppable force, Nvidia is about to come up against an immovable object. Or at least an object that has not moved much in decades—America’s power grid.”
STAT
This is something the stock’s current valuation doesn’t seem to discount. “Add up analysts’ estimates of the next five years’ worth of free cash flows, discount them back at a 10 per cent rate, and they total just $650bn. In other words, the remaining $3.8tn of enterprise value represents cash arriving from 2030 onwards,” reports The Financial Times.
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But the herculean long-term growth projections behind that valuation may not prove credible. As Rob Arnott tells Forbes, “Bubbles burst not because the story is completely wrong, but because around the margins the story is wrong. The story of the rate of growth, the time horizon of growth, is unrealistically optimistic, and the risk of competition eroding market share is underestimated.”
