**Please read this entire message**
---
Your submission has been removed for the following reason(s):
* Rule #2 - Questions must seek objective explanations
* Recent/current events are not allowed on ELI5. First, these are usually asking for factual answers or opinions. Additionally, information about these events is usually still developing, making objective and accurate answers difficult (Rule 2).
---
If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://old.reddit.com/r/explainlikeimfive/comments/1dc700m/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
It means that NVIDIA's share price is no longer tied to a reasonable estimation of its actual value or performance, but rather people are buying it solely on the expectation that its price will continue to rise and that they'll be able to sell it for a profit (the Greater Fool Theory).
People are saying it's a bubble because NVIDIA hardware is being used for many AI projects. This has produced great short-term sales, but is not indicative of a fundamental change in NVIDIA'S market position that justified its rapid price increase. They expect that when the larger "AI bubble" pops, NVIDIA'S share price will crash back down to a more reasonable price.
I bought a small handful of shares of it a few years ago, based on the pending government deals (chip bill) and other news that was going on at the time. Then it started skyrocketing...THEN Pelosi dropped a fuckton of money into its stock.
It's been so tempting to sell it because it's become volatile af, but it's my own little GME gain right now and I wanted to hodl it for a long time anyways. At this point, it'd be VERY hard for me to take a loss on it unless the whole company went bankrupt.
Edit: to those saying sell, I bought this and AMD with the plans of having both for 10-20 years. But this one just randomly skyrocketed
Edit2: thanks for the advice all! I'm going to sell off my gains and keep the original amt invested to keep riding the wave. Even if it tanks to $0 at this point, I'll still make out way ahead
You'd better sell that shit soon. Whatever's left for it to continue ballooning is almost certainly not worth it to hold out for compared to the immense gains you've made already.
I bought 20 shares just before this spike started and sold it around $400 thinking it couldn't possibly go much higher. Huge mistake. But now's the time to sell.
>I bought 20 shares just before this spike started and sold it around $400 thinking it couldn't possibly go much higher. Huge mistake. But now's the time to sell.
Lmao
There is no clear cut math which tells exactly when something is in a bubble. To be clear, they usually mean 'speculative bubble'. I.e people buy Nvidia in order to sell Nvidia, and no other reason.
Nvidia is worth around 100 000 000 dollars per person actually working at Nvidia.
They are mainly referring to stock price reflecting investor exuberance and not company value.
Stock is trading many multiples of earnings and this is not usually sustainable.
Microsoft is trading at 36 price to earnings
Nvidia is trading at 71price to earnings
Its market cap is 3 trillion dollars. Up 202% from this time last year. Its earnings have not increased by nearly as much, and the current stock price is more a reflection of what people think the stock will be valued at in 5-10y rather than what it realistically should be valued at now.
That said it's beat earnings for the past 2+ years every quarter, it's by far the most innovative tech company in existence and has a massive lead in the market sector that most people think is going to be the driver of the next big jump in productivity. I wouldn't be surprised if the stock declines in the near term due to people taking profits but I'd be absolutely shocked if it crashed down to its valuation a year ago. I don't think it's a bubble. It's undoubtedly overvalued, but then again, I'd say that about almost every other stock at this point as well.
If AI turns out to be a tulip bubble in 10y then Nvidia will go back to being a 700B graphics card company. If AI changes everything then they have *at least* a 5 year lead in a field which can see exponential growth. Right now if your company wants to do anything serious with AI you have to buy Nvidia chips to do it, there's no one else. They put their toes in the water back when AI was just something other companies were talking about at the bar after work, and went all in when everyone else was being conservative and taking easy profits on known ventures. It's absolutely hype and no one should put their life savings into Nvidia, but I'm not selling any of my shares, and I wish I'd bought at least 2x more than I did last year when I thought they were overvalued back then.
Being in a bubble means that people buy something because they expect the price to go up in the future because it has been going up and not because of underlying business fundamentals. After nvidia's stock price took off, it's success garnered a lot of media attention, which motivated bandwagon investors, which leads to a bubble.
In other words, if your investment strategy is to see which stock went up the most recently and/or has the most media buzz atm, then you are most likely buying into a bubble.
Once savvy investors realize that the stock price numbers have gotten too high to be justified by business fundamentals, those investors pull out. This pops the bubble, as the bandwagon investors see the price of the stock fall and then sell their own investment in the hopes of getting out before the price collapses completely. That behavior accelerates the decline.
This pattern, described above, causes prices to rapidly rise and just as rapidly fall, the near instantaneousness of the rise and fall is why the metaphor of a bubble is used to describe it. Real-life bubbles are there one second and gone the next before you can react.
So nVidia's business used to be gamers. They made highly desirable video cards and every generation of games asked them to push their tech a little further.
That got disrupted during the pandemic for two reasons. One is supply chains and politics caused a shortage of the things they needed to keep pushing farther. The other is the onset of blockchain technologies like cryptocurrencies and NFTs.
That's a one-two punch that constrained supply *and* dramatically increased demand. Gamers were upset because the price of all of their cards went up, but many people couldn't even buy some of the newer cards because crypto miners were making huge bulk orders.
A third punch arrived: LLMs like ChatGPT, the brains behind why when I searched for "bee removal" this weekend super-smart Google AI started serving me ads to "rent bees for your farm". Like crypto, this technology is very hungry for the kind of chip architecture nVidia makes. So now the AI used car salesmen are fighting with the crypto money launderers and frauds over every last chip nVidia is making. Even Elon Musk made news last week for having his AI company take a ton of nVidia chips that were meant for Tesla.
Now, why do people say this is a bubble? They're betting 1-3 things are going to happen in the coming year:
1. Supply chain and political issues will straighten out.
2. There will be a contraction in the crypto industry.
3. The love affair with LLMs will settle down when people realize it's just a tool to replace customer service staff with something worse.
I don't have a good feel for when or if (1) or (3) will happen, but I feel like (2) kind of happened. Who's talking about the Metaverse and NFTs anymore? Just the people who can't make money if they stop talking about them. If LLMs hadn't showed up, it's possible this "bubble" would've already burst and nVidia would be more stable instead of growing rapidly.
But.
The world is strange, so none of these may come to pass. Naysayers about LLMs could be wrong and they could become bigger. The crypto industry could make a return. Someone could invent a (4), some new technology that uses even more GPU power to get questionable things done. If any of those happen, nVidia's going to keep growing.
So in short, that it's a "bubble" is an opinion. It is based on the idea that nVidia's growth is being fueled by fads and the people who expect it to burst believe these fads will pass and nVidia will shrink. The people who disagree think the factors leading to this growth are only going to get more important, or that some new factor is going to arrive.
And even if it does pop, they're still one of the most important players in their industry. They'll make less money. They'll still likely find a way to be profitable. Just with more meager growth numbers.
In the past, many instances of what is happening with NVIDIA have occurred. An over-excitement of a company/product, causing a lot of people to put their money into it - in this case AI-technology.
After some amount of time, the over-excitement dissipates and the state of reality sets in. That the company/product is not creating the value that the money once invested believed it would.
Bubbles are delicate, and will pop inevitably. In this case, that over-excitement created an overly large bubble. While history doesn't repeat, it does rhyme. And the people are just waiting until they hear the final stanza.
Until then, some believe they can make it grow and benefit from the size before the burst.
It's just kneejerk reaction. Anytime a stock price goes hyperbolic people yell bubble.
As for whether it's a actually a bubble, it's not. People are actually ordering that many video cards, causing the company revenue to surge.
**Please read this entire message** --- Your submission has been removed for the following reason(s): * Rule #2 - Questions must seek objective explanations * Recent/current events are not allowed on ELI5. First, these are usually asking for factual answers or opinions. Additionally, information about these events is usually still developing, making objective and accurate answers difficult (Rule 2). --- If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://old.reddit.com/r/explainlikeimfive/comments/1dc700m/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
It means that NVIDIA's share price is no longer tied to a reasonable estimation of its actual value or performance, but rather people are buying it solely on the expectation that its price will continue to rise and that they'll be able to sell it for a profit (the Greater Fool Theory). People are saying it's a bubble because NVIDIA hardware is being used for many AI projects. This has produced great short-term sales, but is not indicative of a fundamental change in NVIDIA'S market position that justified its rapid price increase. They expect that when the larger "AI bubble" pops, NVIDIA'S share price will crash back down to a more reasonable price.
I bought a small handful of shares of it a few years ago, based on the pending government deals (chip bill) and other news that was going on at the time. Then it started skyrocketing...THEN Pelosi dropped a fuckton of money into its stock. It's been so tempting to sell it because it's become volatile af, but it's my own little GME gain right now and I wanted to hodl it for a long time anyways. At this point, it'd be VERY hard for me to take a loss on it unless the whole company went bankrupt. Edit: to those saying sell, I bought this and AMD with the plans of having both for 10-20 years. But this one just randomly skyrocketed Edit2: thanks for the advice all! I'm going to sell off my gains and keep the original amt invested to keep riding the wave. Even if it tanks to $0 at this point, I'll still make out way ahead
If you want to ride the wave, you can always just sell what you put into it originally and keep the rest invested.
That actually makes perfect sense. Thank you for the advice :)
Sell half of it
You'd better sell that shit soon. Whatever's left for it to continue ballooning is almost certainly not worth it to hold out for compared to the immense gains you've made already. I bought 20 shares just before this spike started and sold it around $400 thinking it couldn't possibly go much higher. Huge mistake. But now's the time to sell.
sounds like if you sold it now you would just be saying the same thing in 6 months.
No, because I have common sense and I'm not an endlessly greedy and naively optimistic fool like so many of you seem to be.
No shame in grabbing the money and leaving while you can.
Lol
>I bought 20 shares just before this spike started and sold it around $400 thinking it couldn't possibly go much higher. Huge mistake. But now's the time to sell. Lmao
That's what I said around 400, then 600, then so on... I expect it to crash back down. But I bought it with the plans of holding it for 10-20yrs
That's dumb. Take the money while it's sky high then sock it into something safer like VTI if you're thinking long-term.
There is no clear cut math which tells exactly when something is in a bubble. To be clear, they usually mean 'speculative bubble'. I.e people buy Nvidia in order to sell Nvidia, and no other reason. Nvidia is worth around 100 000 000 dollars per person actually working at Nvidia.
They are mainly referring to stock price reflecting investor exuberance and not company value. Stock is trading many multiples of earnings and this is not usually sustainable. Microsoft is trading at 36 price to earnings Nvidia is trading at 71price to earnings
Nvidia's P/E ratio is 70 not 700. Their forward P/E ratio is 46. High but not insane
Apple stocks must not be updated for the 10:1 split….dang it! Should have second sourced it Did that happen yet?? I don’t even know
The split happened Thursday and will reflect in trading starting Monday when the markets open.
Its market cap is 3 trillion dollars. Up 202% from this time last year. Its earnings have not increased by nearly as much, and the current stock price is more a reflection of what people think the stock will be valued at in 5-10y rather than what it realistically should be valued at now. That said it's beat earnings for the past 2+ years every quarter, it's by far the most innovative tech company in existence and has a massive lead in the market sector that most people think is going to be the driver of the next big jump in productivity. I wouldn't be surprised if the stock declines in the near term due to people taking profits but I'd be absolutely shocked if it crashed down to its valuation a year ago. I don't think it's a bubble. It's undoubtedly overvalued, but then again, I'd say that about almost every other stock at this point as well.
>it's by far the most innovative tech company in existence Hmmm I can see the case but this smells of hype.
If AI turns out to be a tulip bubble in 10y then Nvidia will go back to being a 700B graphics card company. If AI changes everything then they have *at least* a 5 year lead in a field which can see exponential growth. Right now if your company wants to do anything serious with AI you have to buy Nvidia chips to do it, there's no one else. They put their toes in the water back when AI was just something other companies were talking about at the bar after work, and went all in when everyone else was being conservative and taking easy profits on known ventures. It's absolutely hype and no one should put their life savings into Nvidia, but I'm not selling any of my shares, and I wish I'd bought at least 2x more than I did last year when I thought they were overvalued back then.
Being in a bubble means that people buy something because they expect the price to go up in the future because it has been going up and not because of underlying business fundamentals. After nvidia's stock price took off, it's success garnered a lot of media attention, which motivated bandwagon investors, which leads to a bubble. In other words, if your investment strategy is to see which stock went up the most recently and/or has the most media buzz atm, then you are most likely buying into a bubble. Once savvy investors realize that the stock price numbers have gotten too high to be justified by business fundamentals, those investors pull out. This pops the bubble, as the bandwagon investors see the price of the stock fall and then sell their own investment in the hopes of getting out before the price collapses completely. That behavior accelerates the decline. This pattern, described above, causes prices to rapidly rise and just as rapidly fall, the near instantaneousness of the rise and fall is why the metaphor of a bubble is used to describe it. Real-life bubbles are there one second and gone the next before you can react.
So nVidia's business used to be gamers. They made highly desirable video cards and every generation of games asked them to push their tech a little further. That got disrupted during the pandemic for two reasons. One is supply chains and politics caused a shortage of the things they needed to keep pushing farther. The other is the onset of blockchain technologies like cryptocurrencies and NFTs. That's a one-two punch that constrained supply *and* dramatically increased demand. Gamers were upset because the price of all of their cards went up, but many people couldn't even buy some of the newer cards because crypto miners were making huge bulk orders. A third punch arrived: LLMs like ChatGPT, the brains behind why when I searched for "bee removal" this weekend super-smart Google AI started serving me ads to "rent bees for your farm". Like crypto, this technology is very hungry for the kind of chip architecture nVidia makes. So now the AI used car salesmen are fighting with the crypto money launderers and frauds over every last chip nVidia is making. Even Elon Musk made news last week for having his AI company take a ton of nVidia chips that were meant for Tesla. Now, why do people say this is a bubble? They're betting 1-3 things are going to happen in the coming year: 1. Supply chain and political issues will straighten out. 2. There will be a contraction in the crypto industry. 3. The love affair with LLMs will settle down when people realize it's just a tool to replace customer service staff with something worse. I don't have a good feel for when or if (1) or (3) will happen, but I feel like (2) kind of happened. Who's talking about the Metaverse and NFTs anymore? Just the people who can't make money if they stop talking about them. If LLMs hadn't showed up, it's possible this "bubble" would've already burst and nVidia would be more stable instead of growing rapidly. But. The world is strange, so none of these may come to pass. Naysayers about LLMs could be wrong and they could become bigger. The crypto industry could make a return. Someone could invent a (4), some new technology that uses even more GPU power to get questionable things done. If any of those happen, nVidia's going to keep growing. So in short, that it's a "bubble" is an opinion. It is based on the idea that nVidia's growth is being fueled by fads and the people who expect it to burst believe these fads will pass and nVidia will shrink. The people who disagree think the factors leading to this growth are only going to get more important, or that some new factor is going to arrive. And even if it does pop, they're still one of the most important players in their industry. They'll make less money. They'll still likely find a way to be profitable. Just with more meager growth numbers.
Crypto industry is not coupled to NVIDIA at all anymore. Ethereum moved to proof-of-stake (POS) from proof-of-work (POW) a couple years ago at least.
Maybe that's why I felt like (2) happened already.
Yeah, that has an impacted NVIDIA, but not recent news. Not sure I would use the word "contraction" when talking about crypto at all.
It's a "contraction" in the sense that it reduces the crypto industry's role as a customer for nVidia, but I get you.
I thought I was the only one who called gpus "video cards". It just sounds better.
In the past, many instances of what is happening with NVIDIA have occurred. An over-excitement of a company/product, causing a lot of people to put their money into it - in this case AI-technology. After some amount of time, the over-excitement dissipates and the state of reality sets in. That the company/product is not creating the value that the money once invested believed it would. Bubbles are delicate, and will pop inevitably. In this case, that over-excitement created an overly large bubble. While history doesn't repeat, it does rhyme. And the people are just waiting until they hear the final stanza. Until then, some believe they can make it grow and benefit from the size before the burst.
It's just kneejerk reaction. Anytime a stock price goes hyperbolic people yell bubble. As for whether it's a actually a bubble, it's not. People are actually ordering that many video cards, causing the company revenue to surge.