The return on investment will have to wait for years.
The situation with the active growth of the stock price of NVIDIA and some other companies is beginning to alarm sober investors who understand that this supplier of computing accelerators will still not have time to meet the general expectations of the stock market in the short term. Gavekal Research experts, for example, note the excessively rapid growth in stock prices of companies in the technology sector as a whole – according to their data, over three months, representatives of the global semiconductor industry gained an average of 40%. The capitalization of the 27 largest companies in the sector has grown to a record $5 trillion, and this already allows them to argue on this criterion with the entire US medical sector.
Image Source: NVIDIA
The ratio of the capitalization of companies in the semiconductor sector to last year’s revenue on average reaches a nine-fold difference, and such a gap has never been observed before. The problem is that the actual income of these companies in the foreseeable future may not grow, if not proportionately, then at least to some extent that justifies such a ratio. Revenue from chip sales in average monthly terms has not yet reached the historical maximum, which was observed at the beginning of 2022. The market growth is also not helped by the electric vehicle segment, which is not yet demonstrating positive demand dynamics at the same pace.
In addition, geopolitical risks will greatly influence the development of both the global semiconductor industry and the United States and China separately. Strengthening sanctions of the first country against the second at the initial stage will undermine the revenue of many companies in the semiconductor sector, for which the Chinese market is an important source of income. In the future, the desire of Chinese chip manufacturers for self-sufficiency will begin to pose a competitive threat to American companies, according to experts. In such conditions, long-term investments in the semiconductor sector at current quotes simply seem unjustified.