A touch of vertigo

NVIDIA’s market capitalization reached $4.18 trillion at yesterday’s close. The stock is now a 17-bagger over the past five years, and its valuation is rapidly converging with that of the entire Euro Stoxx 50 — a group of Europe’s 50 largest listed companies, currently worth $5.47 trillion. NVIDIA now makes up 8.19% of the S&P 500, a level of concentration previously seen only with IBM and AT&T — both of which eventually lost dominance due to technological shifts and regulatory breakups.

At ECP, we view NVIDIA as a phenomenal business. Its earnings have largely caught up with its valuation, and at 34.9x forward earnings, the stock doesn’t appear entirely unreasonable for a company at the forefront of the AI revolution. Still, when valuations reach these absolute heights, even the most disciplined investor may feel a touch of vertigo.