In the blink of an eye, there is only one week left in August. With Wall Street and Japanese stock markets rebounding sharply (more than 10%), investors should no longer be frightened by the “Black Monday” crash (whereas over $1 trillion US has been shaved off the market caps of the magnificent seven) at the beginning of August.
This post will talk a little more about the Nvidia and AI investment by the tech giants rather than the probability of a US recession.
Let’s start looking at Nvidia. Nvidia will release its earnings on August 28 after the close of trading. Its share was up 170% in the past year. Nvidia’s stock was up 3,000% in the past five years. Its PE Ratio (TTM) for today is US$ 74.95 (as at 2024.8.23).
Next, how much the tech giants are investing in AI?
CEO Mark Zuckerberg has said that Meta would spend US $30 billion on AI related tech infrastructure in 2024, and the company would spend even more in 2025. Alphabet splashed $145 million US per day on AI infrastructure during the second quarter. The spending also seems to be accelerating.
Overall, in 2024 and 2025, tech giants are heavily investing in artificial intelligence (AI) infrastructure. These companies are expected to spend over $1 trillion on AI in the coming years.
Here comes a question: are these tech giants making good business decisions and growth strategy in its AI investment?
Nobody can ignore that the financial strength of these companies allows them to absorb the costs, and the risks associated with these investments are considered manageable due to their near monopoly market position, vast resources and huge company size.
Despite their market positioning, concerns remained as below:
1. The payoff from these AI investments may not materialized as quickly as anticipated.
2. The PE of these tech giants are already in a high-water mark.
Apple: 29.0
Microsoft: 34.4
Alphabet: 28.1
Amazon: 74.5
Meta Platforms: 34.6
Tesla: 66.2
3. In the case of Meta and Alphabet: neither of them charges for their AI basic services. Will their AI investment help them to sell more advertising and attracting more clients for more revenue and profits?
Nobody has a crystal ball for knowing Nvidia share price trend in 2025 and exactly how AI will impact the tech giants as well as impacting our world. I think (i) we can confidently say AI will have a large impact on our world (ii) we can learn from history.
Between 1998 and March 2000, Cisco’s stock price soared by over 1,000%. At its peak, Cisco was the most valuable company in the world, with a market capitalization exceeding $500 billion. However, when the bubble burst, Cisco’s stock price plummeted dramatically. By 2001, its share price had dropped by nearly 80% from its peak.
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