As an investor, one hopes to buy a stock as an investment and see its value grow as it does good work selling its products and services to customers which results in a profit and then can pay a dividend. There have been many stocks which have done this and this is why buying the S&P 500 index and holding it for a long period of time, typically will give you more wealth. As an individual investor what you are hoping for is the lottery ticket gains, but still to buying a lottery ticket they are hard to win the jackpot. In the past 20 years, 5 stocks have become worth a trillion dollars – Apple, Alphabet, Microsoft and Amazon, the latest is Nvidia.

In an article by Akash Sriram and Samritha A of Reuters, Nvidia has been on the radar of people ever since gaming has become more popular. The revenues from people playing games on line is equal or more than people who go to the theatre to watch movies. For those who play games, they might have bought game makers companies, the movie people likely bought movie companies and some bought the chips that power the computers. Nvidia’s graphic chips power the graphics to play games and during the crypto run up, Nvidia’s chips were powering the chips to allow the crypto industry to grow. Recently, ChaptGPT was launched to the public and Nvidia’s graphic chips were adapted to allow AI to do run the programs.

The AI capabilities needed by all companies has pushed up the share price of Nvidia by over 240% since October.

All Wall Street, there are multiple analysts that cover all the stocks, which means when Nvidia beat the estimates by more than 50%, the professionals on Wall Streeet were amazed by the performance of Nvidia and the stock rose over $100 the next day.

According to Refinitiv data, Nvidia’s forward price to earnings multiple is 47.79, which tops the sector median of 18.09. Is it overvalued? or are we in disruptive situation?

The computers which run AI are powered by chips called Graphics Processing Units (GPUs) which Nvidia has a 80% marketshare. All the other trillion dollar companies are large purchasers of the chips for their AI software.

Linking to dividend paying stocks, Nvidia pays a small dividend, but the growth has a high potential. They produce the chips that will run AI. Most of the time, by purchasing dividend paying stocks, you do not expect great growth, just consistent growth year over year which allows them to make profits to pay dividends. Once in a while, it is nice to have a growth stock in your portfolio.

There are more questions than answers, till the next time – to raising questions.