What to trade: Nvidia joins the Trillion-dollar club!
Major computer chip maker, Nvidia (NVDA), hit a $1 trillion market cap on May 30 before paring back gains, falling to $990 billion. The company’s shares had to hold above $404.86 to maintain its status in the exclusive “Trillion-dollar club” throughout the day.
Nvidia’s market cap places it alongside a handful of other companies, including Apple, Alphabet, Amazon, and Microsoft, that have a $1 trillion or more valuation.
Nvidia shares were already up 166.5% year-to-date before hitting its new milestone.
CMTrading, takes a look at the company and shares valuable advice for all traders.
Big day for Nvidia
Nvidia initially achieved a remarkable milestone on Tuesday as its market capitalization soared to $1 trillion, only to later recede slightly and settle at $990 billion. Throughout the day, the company’s shares had to stay above $404.86 to maintain its distinction, and although it held a fresh 52-week high, it narrowly missed the coveted $1 trillion valuation at the closing bell.
As a leading provider of AI hardware and software, the company experienced a staggering surge in valuation, soaring by $280 billion or nearly 40% since May 15.
+206.99 (120.80%) past 6 months
+195.14 (106.52%)past year
Fred Razak, Senior Trading Strategist at CMTrading shares his thoughts:
“Nvidia is a computer chip company that has a long way from competing again rival Intel. For the most part, it manufactures chips and hardware for the gaming market. This means they’re a cut above the rest of the market when it comes to their creativity and their capacity.
“So, they do have a niche in the market that they’ve been able to overtime really stand ahead above the rest of the markets for a long time. It’s a company that is run very well and it’s been on the cutting edge of the market for a long time.
“Now why is this going beyond $400 a share? OK, so this is what the market doesn’t realize. The markets are trading at least six months in advance. As we’re seeing ChatGPT hit the market and the demand for it, this implies that there will be further demand in the chain line. Which means that they’re going to need hardware to support ChatGPT and AI.
The future of AI
Razak said: “It’s a product that appears to have come from nowhere and suddenly ai is now the real thing. Right now, it’s still in the infant stages of it but as we progress, we’ll see some tremendous things out of this sector. So that’s why this stock is going out and I anticipate that it’s going to. It might dip for people wanting to take some money off the table, but ultimately this market is going to dictate the future in terms of AI being a major component of additional trillions of dollars being developed in the business place.”
While Nvidia’s achievement is remarkable, it also reflects a broader trend seen among all members of the Trillion-Dollar Club this year. The five companies in this exclusive club, including Apple, Microsoft, Alphabet (Google’s parent company), Amazon, and Nvidia, have exerted a dominant influence on the S&P 500 index. However, this concentration of power raises concerns about the sustainability of market gains and the potential for market correction.
The Trillion-Dollar Club, which now includes Nvidia, has been responsible for a significant portion of the S&P 500’s gains this year. Since the beginning of January, these companies have witnessed substantial increases in their market capitalizations. Apple and Microsoft each added over $700 billion in market cap, while Nvidia, Alphabet, and Amazon experienced increases of $640 billion, $460 billion, and $371 billion, respectively. Collectively, the Trillion-Dollar Club has raised its combined market cap by an impressive $2.87 trillion in just a few months.
Trillion-dollar market cap club:
|SYMBOL||NAME||MARKET VALUE||YTD %|
|AAPL||Apple Inc.||$2.759 Trillion||36.4|
|MSFT||Microsoft Corporation||$2.475 Trillion||38.9|
|GOOGL||Alphabet Inc. Class A||$1.587 Trillion||40.83|
|AMZN||Amazon.com, Inc.||$1.232 Trillion||46.05|
|NVDA||NVIDIA Corporation||$1.00 Trillion||177.23|
Interestingly, the total rise in the S&P 500 index amounts to slightly more, at $2.98 trillion. Consequently, the Trillion-Dollar Club’s contributions account for 96% of the index’s year-to-date increase of 9.5%
The growing dominance of the Trillion-Dollar Club has led to an imbalance within the S&P 500. At the end of 2022, these companies represented approximately 17.6% of the index’s total valuation. Today, that figure has risen to 25.6%.
In 2022, these companies collectively generated approximately $224 billion in net profits, a 50% increase compared to their pre-COVID earnings in 2019. Thus, the inflated valuations come on top of already impressive profits, raising questions about the sustainability of such high earnings levels.
Booming tech stocks
Investors are now placing high expectations on rapid earnings growth from four major and mature companies – Apple, Microsoft, Alphabet, and Amazon. Additionally, Nvidia is anticipated to deliver exceptional growth based on the promising prospects of AI. However, these elevated hopes and corresponding stock prices may be excessive. In essence, Nvidia’s rise reflects the increasingly lofty valuations of the tech giants within the Trillion-Dollar Club, which have in turn inflated the overall market index.
While the S&P 500’s performance this year may appear impressive, it is important to view it in context. The Trillion-Dollar Club is overperforming, while the rest of the market reflects the reversal of historic earnings. Soon, the biggest stocks in the world will face the same pressure holding back the rest of the market. When this happens expect a drop in the overall index.
Trading tech stocks can be an exciting and potentially lucrative endeavor. However, it’s important to approach it with a well-thought-out strategy and a thorough understanding of the market.