Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

Despite the continuous reduction of holdings by executives, the stock price has reached a new high recently, with a market value of 3.34 trillion US dollars at the close of the US stock market on June 18, surpassing Microsoft as the world's highest market value listed company. $NVIDIA (NVDA.US)$Since reaching a market value of $1 trillion in May 2023, it took Nvidia's stock price approximately a year to "leapfrog". Earlier this year, the market questioned whether Nvidia's high valuation was a bubble, but analysts have set even more ambitious goals, with the company's market value expected to climb to nearly $5 trillion next year.

As of now, Nvidia's P/E ratio has reached 78 times, far exceeding Microsoft (38.5 times) and Apple (32.6 times) who follow closely behind. After breaking yet another record, is Nvidia's current valuation already overpriced?

Despite the continuous sale of stocks by insiders at Nvidia this year, their shareholdings has not caused any downward pressure on the company's stock price. According to statistics compiled by Washington Service, Nvidia's executives and directors have sold about 770,000 shares of Nvidia's stock this year, worth more than $700 million (excluding the impact of the company's stock dividend split on June 10 at a ratio of 1-to-10). Since Q1 financial report was released in May, more than one-third of Nvidia's insiders have chosen to sell their stocks.

Nvidia's P/E ratio has reached 78 times, far exceeding Microsoft (38.5 times) and Apple (32.6 times). After breaking yet another record, is Nvidia's current valuation already overpriced?

Q1 revenue exceeded expectations, with three consecutive quarters of revenue growth exceeding 200% due to the strong demand for AI accelerator chips for data center servers brought about by the AI arms race.

Benefiting from the strong demand for AI accelerator chips for data center servers brought about by the AI arms race, Nvidia's Q1 revenue continues to greatly exceed market expectations.

In Q1 2024, Nvidia achieved revenue of 26 billion US dollars, a year-on-year increase of 262%, with net income of 14.81 billion US dollars, a year-on-year increase of 628%. This is the third consecutive quarter that Nvidia's revenue growth has exceeded 200% year-on-year, with data center business revenue reaching 22.6 billion US dollars, a year-on-year increase of 427%, and a month-on-month increase of 23%, becoming the main contributor to this growth.

Regarding the Q1 performance, Nvidia's CFO stated that the demand from customers in various fields was very strong, especially from enterprise and consumer internet companies, and the deployment and upgrading of their infrastructure by large cloud service providers brought about an increase in revenue.

Among the products currently on the market, the Hopper architecture GPU (such as the H100) is the main product that drove the company's Q1 performance growth, and the Llama 3 open-source large model released by Meta used nearly 24,000 H100 GPUs. The H200 has been upgraded on the basis of the H100, with the memory bandwidth increased by 1.4 times, the memory capacity increased by 1.8 times, and the ability to process generative AI tasks improved. The company has revealed that the H100 GPU supply situation has improved, but it is still short of supply; the H200, which was released in November last year, is being fully shipped and is expected to be launched in Q2 2024.

In terms of the AI industry ecosystem, Nvidia recently released NVIDIA NIM cloud-native microservices, which allows developers to download NVIDIA NIM and deploy AI models on the cloud, data centers, or workstations, and build a variety of generative AI applications. Nvidia also revealed that nearly 200 technology partners, including Cadence, Cloudera, Cohesity, DataStax, NetApp, Scale AI, and Synopsys, are integrating NIM into their platforms to accelerate the deployment of generative AI.

It is worth mentioning that Nvidia seems to attach particular importance to the medical and biological industry in the downstream of the AI application, as NIM supports various AI applications, including surgical planning, digital assistants, drug discovery, and clinical trial optimization. Nvidia has also invested in a number of companies focusing on AI pharmaceuticals, gene editing, and precision medicine in recent years.

Looking ahead, Nvidia is planning to launch a new generation of AI chips and supercomputing platform, the Blackwell series. It is reported that Nvidia's first Blackwell chip is named GB200, the currently "most powerful chip in the world", and has already been fully commissioned. It is expected to be shipped in the second quarter of this year, increase production in the third quarter, and officially launched into data centers in the fourth quarter, with significant growth in revenue expected this year.

Nvidia's next-generation architecture is named Rubin, and the next-generation CPU is named "Vera". Products based on the Rubin architecture are expected to arrive between the fourth quarter of 2025 and the first quarter of 2026. Rumors suggest that they will be manufactured using TSMC's 3nm process, and the B100 has used the CoWoS-L package. It is likely to be one of the first products to use HBM4. Unlike the industry convention of "two-year updates", Nvidia will keep up with market demand changes with a fast-paced annual product iteration.

Despite the market's optimism, are there still risks facing the Chinese market behind Nvidia's soaring stock price?

While both performance and stock prices are soaring, Nvidia's market share continues to rise. According to the latest report from market research firm Jon Peddie Research, the global shipment volume of discrete graphics cards (AIB) in the first quarter of 2024 was 8.7 million, a decrease of 7.9% from the previous quarter's 9.5 million, and an increase of 39.2% year-on-year. Nvidia's market share further increased to 88%, AMD's share decreased by 7 percentage points to 12%, and Intel's share was less than 1%.

Despite Nvidia's stock price rising for more than a year and soaring over 200% in the past year, most research institutions still believe that the company's upward trend has not ended. For example, Rosenblatt Securities analyst Hans Mosesmann has raised the target price of the chipmaker from $140 to $200. Bank of America reiterated its "buy" rating on Nvidia's stock in a report released on June 5th. The company led by Jensen Huang is still the first choice in the IT industry, and Bank of America set a target price of up to $150 within 12 months, while Susquehanna also raised the company's target price from $145 to $160, stating that although Nvidia's valuation is much higher than its peers, it is still reasonable because Nvidia can seize the significant opportunities in the booming AI terminal market.

In addition, former world's richest man Elon Musk also praised Nvidia's AI chips. In Tesla's Q1 2024 earnings conference call, Musk announced plans to increase the company's H100 (Nvidia's flagship AI chip) active quantity from 35,000 to 85,000 within the year, and invest as much as $10 billion in unified training and reasoning for AI. Not only does Tesla require a large number of Nvidia GPUs for autonomous driving AI training and workload, but Company X also needs to deploy an H100 GPU cluster to build a "computing super factory." Previously, Musk revealed that it takes about 20,000 Nvidia H100 GPUs to train the Grok 2 model, and training next-generation models and higher versions will require 100,000 Nvidia H100 chips.

However, there are also voices in the market that are wary of the AI bubble. For example, Howard Marks, co-founder of Oaktree Capital, recently said in an interview that the current market is displaying a very wild nature (artificial intelligence AI), which has the upper hand and is disconnecting from economic fundamentals. If emotions dominate, and positive changes in the real world do not meet investor expectations, the stock market may even fall. Taking AI as an example, if there is excessive hype and expectations for Nvidia are too high, failure to meet expectations may lead to disillusionment and disappointment.

As for Nvidia's market share in China, which was previously a concern in the market, Nvidia's response is to provide several new types of artificial intelligence (AI) chip samples to the Chinese market, which include the latest AI functions but have reduced computing capabilities to comply with export control regulations. It is still unknown whether this product can be accepted by Chinese buyers. Previously, Nvidia executives admitted at the financial report meeting that the company's sales in China in Q1 of this year "significantly" declined.

Behind Nvidia's record financial performance, the company not only faces competition from rivals such as Google and Microsoft, but also needs to be cautious about the risk of slowdown in growth of generative AI. Some analysts point out that the cost of the "arms race" of computing power is growing exponentially, but the number of cases that can truly achieve commercialization and monetization is not optimistic. If Nvidia wants to continue to deepen its value in the process of integrating AI into its business, it will face many challenges.

Editor/Lambor