The widely held S&P 500 (SPY) index pulled back yesterday after crossing a milestone of 5,500 points for the first time last week. The rise has substantial risks. Nvidia’s (NVDA) rise to a market capitalization above that of both Apple (AAPL) and Microsoft (MSFT) may end. Markets, as they always do, are pricing sustainable server growth for Nvidia’s AI products.
Nvidia’s CUDA architecture is an undisputable, proprietary platform for the graphics chip market. It led to strong profit margins that neither Advanced Micro Devices (AMD) nor Intel (INTC) may match. On the cost side, Taiwan Semiconductor (TSM) and ASML (ASML) may eventually raise prices. This would pressure the profit margins for all chip makers.
The media is keen to compare Nvidia’s market capitalization to the total value of stock markets in France,
Germany, and the U.K. combined. However, those firms do not have the same growth rate as that of Nvidia. Still, investors could buy an ETF representing those three countries for higher diversification.
Last week, the Information Technology (XLK) traded almost flat. The Utilities Sector (XLU) dropped by 0.79%.
Investors picked up the beaten-down Consumer Discretionary (XLY) sector, which rose by 2.4% last week. Energy, Financials, and Industrials are among the sectors that returned nearly 1.0% or more.