Party Like It’s 1999

There is a stock called Nvidia (NVDA). You might have heard of it. It makes the chips that Artificial Intellligence (AI) runs on. It is up nearly 200% over the last year and is close to becoming the world’s most valuable company. A 5% gain would push it past Apple and an 8% gain would make it worth more than Microsoft. CEO Jensen Huang has become a rockstar with women lifting their shirts to have him autograph their bras. This is heady stuff.

Ben Graham famously said that “In the short term the market is a voting machine; in the long term, a weighing machine”. That is, the emotion of the crowd determines a security’s value in the short term while over time the market calibrates price to fundamentals. On that score, it’s worth mentioning an article in Saturday’s WSJ by technology columnist Chistopher Mims: “AI Has Been Massively Overhyped” [SUBSCRIPTION REQUIRED]. Mims argues that AI may be a “signficant disappointment” both in terms of what it can do and the returns it will generate for investors.

Of course – as John Maynard Keynes famously quipped: “In the long run we’re all dead”. To paraphrase him, nobody cares about that right now. What investors care about is whether the stock is going up or down in the next few days and weeks. And that’s an important question too. Because the market has become dependent on gains from NVDA to move higher. Very few others stocks – including the rest of the Magnificent 7 – are doing much at the moment.

For the last five trading sessions, NVDA has essentially closed between $1100 and $1150. The resolution of that range – whether NVDA breaks out to the upside of it or breaks down to the downside – is likely to determine short term market direction – and even possibly whether the bull market is over. Get your popcorn ready as every session these days seems to be an action packed roller coaster.