Jensen Huang during the China International Supply Chain Expo in Beijing
(Bloomberg) — Nvidia Corp. made history last week when it became the first company ever to have a market value of $5 trillion. But that’s just one way it’s casting a shadow over the global economy.
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The chipmaker at the heart of the artificial intelligence revolution is not only by far the biggest company on the planet, it also may be the most influential stock in Wall Street history. Nvidia has been the primary driver of the market’s gains since the start of 2023, delivering massive returns to shareholders and minting billions for Chief Executive Officer Jensen Huang. It’s now larger than six of the 11 sectors in the S&P 500 Index and the entire equity markets of most countries.
“This is obviously a massive outlier from a historical perspective, really something to behold for the ages,” said Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments.
Just last week, Nvidia announced deals with Nokia Oyj, Samsung Electronics Co. and Hyundai Motor Group. While the company doesn’t report earnings until mid-November, recent results from megacap tech companies highlighted how much more it can grow.
Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Amazon.com Inc. all pledged to keep spending heavily on AI. The four companies are expected to boost combined capital spending 34% to roughly $440 billion over the next 12 months, according to data compiled by Bloomberg. Those outlays have been the primary reason why Nvidia’s revenue is projected to reach $285 billion in its next fiscal year, up from just $11 billion in fiscal 2020.
All of this helps explain why there’s so much chatter about a stock market bubble surrounding AI, with Nvidia being at the center of it all. Huang downplayed concerns about the euphoria getting out of hand at the company’s annual GTC conference last week, and Federal Reserve Chair Jerome Powell dismissed comparisons to the dot-com era of the late 1990s during his press conference on Wednesday.
“Trends like this reach a climax point and reverse, and we expect that will happen eventually,” Miskin said. “For the time being, however, companies at the epicenter of the AI race are doing the best in terms of earnings, and that would need to change in order for leadership to change. Still, it does feel like the S&P 500 is putting a lot of eggs into one basket.”
The five charts below chronicle Nvidia’s surge to $5 trillion in market value and show how significant it has become to the stock market:
As the largest company in the world, Nvidia naturally has the biggest weight in major equity indexes, which are based on market capitalization. The stock accounts for 8.5% of the S&P 500, which is more than the bottom 240 firms combined.
This is likely a record for any component, according to Howard Silverblatt, senior index analyst at Standard & Poor’s, although he noted that daily data going back a century is hard to find. In mid-2023, Apple’s weight topped out at 7.7%, while Microsoft got as high as 7.4% later that year. Right now, the seven biggest technology stocks have a combined weighting in the S&P 500 of more than 36%, with Apple Inc. the second largest at 6.9%.
Not only is Nvidia the world’s most valuable company, with second-place Apple trailing by roughly $1 trillion, it’s also worth more than the combined value of stock markets in the Netherlands, Spain, UAE and Italy, according to data compiled by Bloomberg.
The Santa Clara, California-based company is now larger than all but five of the world’s stock markets: US, China, Japan, Hong Kong and India.
Nearly all Wall Street analysts are bullish on the stock with about 91% giving it a buy-equivalent rating. There is a consensus that this rally has legs, with HSBC analyst Frank Lee recently raising his price target on the stock to a Street-high of $230 — which translates to a market capitalization close to $8 trillion.
There is, however, one analyst with a contrarian call on the stock: Seaport Global Securities analyst Jay Goldberg has maintained a sell since April, coupled with a Street-low price target of $100. The stock has more than doubled in the period.
As companies expand, the rate of their sales growth tends to slow down because the comparisons are to a larger base. The average annual revenue growth for S&P 500 firms with $100 billion or more in projected sales is 6%. Nvidia also is the outlier here, with revenue set to expand by nearly 60% in its current fiscal year.
While that pace has cooled from 126% and 114% in the previous two years, it still dwarfs Nvidia’s megacap peers. The next largest companies, Microsoft and Apple, are expected to post annual revenue growth of 15% and 6.2%, respectively.
Huang’s net worth has ballooned alongside the frenetic rally in Nvidia’s stock price, hitting $176 billion, according to the Bloomberg Billionaires Index. That’s up more than $60 billion this year alone, enough to make him one the world’s 10 richest people. Huang owns about 3.5% of the company, in his own name and in family trusts, an October filing with the US Securities and Exchange Commission shows.
