Elon Musk's Latest Warning To Nvidia

Nvidia Corp. NVDA recently made headlines for joining the elite "trillion-dollar group" after its market cap briefly crossed $1 trillion during the last week of May. 

Nvidia is one of only a handful of companies boasting a 13-figure valuation. Some of the most prominent ones include Apple Inc., Amazon.com Inc., Google parent Alphabet Inc. and Microsoft Corp. Some of which have even surpassed $2 trillion in recent months.

Nvidia's rise can be attributed to the increased demand for semiconductors during the COVID-19 pandemic as the labor market adjusted to remote work and the recent artificial intelligence (AI) boom. 

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The AI Boom 

Though experts are split regarding Nvidia's ability to maintain its dominance in the AI chips market, almost everybody unanimously agrees that AI is the next big thing in tech. ChatGPT, the viral generative artificial intelligence tool downloaded nearly half a million times in the first week of launch, has become the fastest-growing consumer application in history. The AI platform reached 100 million active users in just the first two months, a feat that has not been observed in the "20 years following the internet space," according to UBS analysts. 

While the Nividia stock's stark overvaluation might make it too expensive for retail investors, investing in AI-powered startups such as Gameflip on popular crowdfunding platforms can be a feasible alternative. While the chances of Nvidia's share prices falling in the near term are high, as the stock has already begun pulling back, startups leveraging AI technology can harness the recent AI boom without having to worry about temporary stock market reversals.

Top-Performing Stock In The S&P 500 Index 

Nvidia has been the best-performing stock over the past few years, successfully capitalizing on the increasing demand for microchips and the rising popularity of AI. Up more than 165% year to date and by nearly 130% over the past year, Nvidia stock is one of the biggest winners of the pandemic and recent focus on AI. 

Analysts have long been bullish on Nvidia, with CFRA Research analyst Angelo Zino stating, "We view Nvidia as the most important company on the planet in an era that is rapidly changing towards one that will be emphasized by greater AI capabilities."

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Nvidia's AI Power Tool: A100 Chips 

Nvidia's flagship graphics processors and AI chips have made it the most valuable company right now. Thanks to the rising demand for AI chips used in data centers and generative AI applications made by OpenAI, Google and Microsoft, Nvidia is poised to have a "giant record year," according to CEO Jensen Huang. The company is beating old industry titans, including Intel Corp. and Advanced Micro Devices Inc., which reflects the fast-paced environment of the tech industry. 

Nvidia controls 95% of the market share for graphics processors used for AI and machine learning, with its crown jewel A100 chip priced at approximately $10,000, according to a New Street Research report. 

Huang credits OpenAI's ChatGPT for its recent success and fleeting trillion-dollar valuation. 

"The flashpoint was generative AI," he said, "We know that CPU [central processing unit] scaling has slowed, we know that accelerated computing is the path forward and then the killer app showed up."

Overvaluation Concerns And Elon Musk's Warning 

It is no surprise that the world's most valuable publicly traded semiconductor manufacturer's shares are overvalued. Nividia stock, which nearly tripled over the past eight months, is currently trading 49.87 times its forward non-generally accepted accounting principles (GAAP) earnings. The industry average forward price-to-earnings ratio is 22.33, while Taiwan Semiconductor Manufacturing Co. Ltd., one of the top semiconductor manufacturers in the world, is trading just above 20 times its forward earnings. 

Billionaire polymath Elon Musk, known for his controversial stance on several socioeconomic topics and temperamental tweets, responded to a tweet stating that Nividia stock has delivered the highest returns compared to any other U.S. stock over the past 10 years. 

Musk stated that Nvidia's monopoly in the AI chips market is going to end soon, with other semiconductor manufacturers ramping up their innovation and production capabilities. 

"Also, many other NN [neural network] accelerator chips are also under development. Nvidia will not have a monopoly on large-scale training & inference forever," the Tesla CEO tweeted on June 7. Nividia stock hit a month-to-date low on June 7 following Musk's tweet. 

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