Nvidia’s moonshot to a $1 trillion valuation closely virtually mirrors the sudden takeoff that lifted another shooting star to that landmark two years ago—you guessed it, Tesla. But the EV pioneer soon tumbled from the Trillion-Dollar Club, and has since dropped back to the level where its sudden, stupendous rise began. Nvidia is another player that’s achieved what could well be an inflated valuation based on excessive optimism about a “technology of the future”—the acronym that’s got Wall Street partying, A.I. Indeed, its time in the exclusive club could be brief, just like Tesla’s.
Nvidia notches one of the biggest market cap gains of all time
On Tuesday, May 30, Nvidia posted a 6% gain to reach $1 trillion in market cap for the first time. At 11:30 a.m., its valuation hovered at a market cap of $1.012 trillion. In its pre-noon runup, Nvidia added $58 billion to its $207 billion, or 24% increase over the previous two trading days. By Fortune‘s reckoning, the total $265 billion jump on May 25, 26, and 30—providing the May 30 gains so far hold to the close—would rank as the largest three consecutive trading-day valuation increases in the history of U.S. capital markets. In the three trading sessions, Nvidia added to its valuation by the equivalent of two-thirds the market cap of Johnson & Johnson.
Hitting 13 figures places Nvidia in a club with only four other current members: Apple (market cap: $2.76 billion), Microsoft ($2.47 billion), Google ($1.59 billion), and Amazon ($1.24 billion). Only three, Apple, Microsoft, and Google, have proven reliable, long-term club mates. After joining in 2018, Amazon dropped out for several months starting in November of 2022, then rejoined in mid-March 2023. Two other tech giants were short-termers: Meta Platforms gained admittance for only a month or so in August and September of 2021, and Tesla crossed the fancy threshold in November of 2022, only to exit for good the following April.
Nvidia’s explosive stock price rise
From late May of 2021 to October 2021, Tesla entered the Trillion-Dollar Club by posting one of the biggest market cap increases, in dollars and percentage terms over a six-month period, for any company already worth hundreds of billions of dollars. In that span, its shares roared 110%, lifting its worth by $637 billion to $1.2 trillion. But amazingly, Nvidia’s half-year performance beats Tesla’s in both dollars and scale of gain. In October of last year, Nvidia’s market cap stood at “just” $278 billion. So in six months, it has added $734 billion to reach its current $1.012 trillion mark. That’s over $170 billion more than Tesla tacked on, and the 260% increase is more than double Tesla’s jump.
When Tesla reached the $1 trillion–plus pinnacle, its P/E ratio soared to over 200. The expectations for profit growth built into its share price were far too high. Since then, Tesla’s market cap has dropped 50% from its peak to $619 billion, and its multiple remains lofty at 54. The spike that took Nvidia to $1 trillion didn’t incorporate expectations for future profits as humongous as those for Tesla at its summit. Nvidia’s P/E is now well over 70. But that still means that to reward investors, its future profit growth needs to be spectacular. By Fortune‘s estimates, which you can read more about here, Nvidia must grow current earnings by 26% a year over the next decade, and make $125 billion by 2033—more than Apple’s profits today—just to deliver a 10% annual return.
Tesla flamed out of the Trillion-Dollar Club in a hurry. Today’s other members all have great credentials. They’ll likely be sporting club ties for a long time. They’ve been generating huge profits for years, and their P/Es don’t require them to generate anything like the startup-like gains expected of Nvidia. It’s likely that investors saw too much, too soon in Nvidia. Meaning its stay in the Trillion-Dollar Club, like Tesla’s, may be a short one.