Seventeen-year-old Suhas Badrinarayan isn't alone. Fueled by artificial intelligence (AI) enthusiasm, everyday investors are piling into Nvidia, propelling the chipmaker's stock to become the S&P 500's top performer for two years running. But can this meteoric rise defy historical trends and continue, or is a reality check looming?
Suhas, like many of his peers, was captivated by Nvidia's potential early on, investing in 2020 and adding to his position in 2022, drawn by the company's role in powering AI advancements like OpenAI's Dall-E 2. Now, Nvidia constitutes a significant portion of his portfolio, reflecting a broader trend. This year alone, individual investors have poured a net $1.2 billion into the stock, surpassing inflows into other tech giants like Alphabet and Amazon.
But with great returns comes great uncertainty. Nvidia's earnings report on Wednesday could be the catalyst for the next leg up, or a sobering reality check. Analysts project annual revenue to reach $110 billion by 2026, more than doubling from current levels. However, historical data shows that only 59% of the S&P 500's best performers in one year manage to maintain their momentum the next.
Despite this cautionary note, the AI boom fuels optimism. Taiwan Semiconductor Manufacturing, a key Nvidia supplier, recently hit record highs, and tech giants like Microsoft and Amazon are ramping up AI investments. This fervor has even convinced Dave Segars, a seasoned investor initially wary of chip stocks, to jump on board.
Not everyone is swept away by the hype. Alex Labarre, a financial analyst, witnessed Nvidia's 2022 crash firsthand but held on, believing in the company's long-term prospects. He trimmed his position to lock in profits but remains bullish. "I was happy to ride that AI boom," he says.
Nvidia's popularity among individual investors even surpasses Tesla, a longtime favorite. This month, Nvidia trading volumes account for 8% of daily U.S. equity trading by everyday investors, compared to Tesla's 7%. This shift reflects growing confidence in Nvidia's potential.
However, John Goltermann, chief investment officer at Townsend & Associates, advises caution. "I've seen people lose fortunes believing the immediate past was going to repeat into the immediate future," he says. In down years, Nvidia's stock has suffered significant losses, dropping 50% in 2022 and 31% in 2018.
So, where does Nvidia go from here? Wednesday's earnings report will be a crucial test. While the AI boom offers promising tailwinds, investors must remember historical trends and weigh the risks and rewards carefully. Whether they choose to follow Suhas and others on this high-flying adventure or heed Goltermann's warnings, one thing's for sure: Nvidia's future remains a captivating spectacle for both investors and the tech industry as a whole.
