March 26, 2024
Is Warren Buffet buying NVIDIA now?
No, chances are that Buffet will die before buying into the NVIDIA bubble. NVIDIA may continue appreciating during this AI boom, but may also come down relatively fast and soon. Warren Buffet is a 93 year old "stock" (Savvy, Tempered, Opportunist, Capitalist, Knowledgeable (STOCK) businessman). He is a value investor and avoids short term speculation.
Warren Buffet is not buying any shares of NVIDIA any time soon. NVIDIA is "deep high" in bubble territory. Buffett would only consider buying NVIDIA if the bubble were to burst and NVIDIA were to crash 70% or more, which is highly unlikely for now.
Did NVIDIA finally go down today?
NVIDIA went down 2.57% today, coming down from yesterday's $950 per share to today's closing of $925 per share, losing $70 billion in market capitalization (from $2.38 trillion to $2.31 trillion) in jsut 24 hours of active trading.
Classical financial bubbles tend to burst when almost everyone is convinced that the asset price can only go up. Up to today, that was mostly the case for NVIDIA. Some bubbles deflate gradually, little by little, without a major burst. It is hard to predict what sort of descent NVIDIA will have, but it will certainly descend. NVIDIA has appreciated too quickly. In general, the faster the ascent, the faster the descent.
Despite today's 2.57% drop to $925 per share from yesterday's $950, the AI boom is far from over yet. NVIDIA will most likely surpass the psychological barrier of $1,000 per share, and reach the $3 trillion valuation before it comes crashing down.
Is it time to short NVIDIA?
Buffet would not recommend it. Shorting is speculative and can prove very expensive. We began testing the waters, shorting NVIDIA at the $550 per share mark back in January of this year. It didn't go well and we got out of the water quickly at a quick loss. In just a little over three months, NVIDIA gained 65%. It's irrational to bet against irrationality.
The AI boom is real, but it is feeding an unrealistic AI bubble. NVIDIA is the poster child of the AI bubble part of the equation. Generally, NVIDIA keeps adding to its value, with many speculators finding every reason to believe that NVIDIA can only go up. That is a classic sign of a bubble. Fools rush in for gold until there is none and everyone goes back home in flames.
NVIDIA may come down drastically about 30% by the summer or go up 30%. It is impossible to predict irrational market behavior. NVIDIA closed yesterday at $950 per share, for a market capitalization of 2.38T making it the third most valuable company in the world, trailing only Microsoft and Apple. Yet again, it lost 2.57% today, erasing $70 billion in just one day.
What would Warren Buffett do?
Warren Buffett, 1930 - present, would completely ignore NVIDIA and not get anywhere close to acquiring any of it. NVIDIA might be a great company, sitting on GPU microchip gold, but Buffett would not touch it. Warren is savvy, temperate, opportunist, capitalist, and knowledgeable ("STOCK").
Buffett only buys at bargain prices, when the right opportunity comes to dominate with his capital, and when he can leverage his knowledge of human psychology and business. Buffets famously described his two rules for making money. The first rule is not losing money, and the second rule is to not forget the first rule.
Buffett focuses on value investing. Investing is acquiring property rights that are expected to appreciate over time. Value investing entails buying high quality companies at the right time and holding them for a very long time, oftentimes "forever" if possible.
Buffet is a "stock", a Savvy Tempered Opportunist Capitalist Knowledgeable (STOCK) investor.
Warren Buffett is savvy about business management, investing, finance, and human psychology. The man began investing when he was 11 years old. He has 82 years of experience investing. Buffet is very patient and tempered. He does not operate by impulse, does not speculate, and rarely reacts emotionally to business trends and economic cycles. Buffet waits patiently for the right opportunity. Buffet tries to buy the best companies at the best prices and under the most favorable terms possible. Buffet looks for companies that enjoy a deep competitive advantage, that have solid management, excellent track record, solid finances, a stable or growing segment, and that happen to be having a transient bad moment impairing its valuation. Buffet makes tempting offers that some companies cannot resist.
Buy low / sell high is the quintessential rule about making money. For Buffett, it is Buy low, and hold forever. Buffett buys low and does not worry about day to day changes in stock market valuation or changes in transient consumer sentiment. Buffett plays the long game.
NVIDIA is in bubble territory.
The AI boom / bubble has already taught us a few lessons. Betting against the American AI boom can prove very expensive. Losses can add up quickly. There is no limit to stupidity. Valuations are subjective. Markets are irrational.
Warren has warned investors against the traps of speculation, and also about the risks of betting against the American economy in general. Buffett is 93 and wise as old age. Humans interested in making money and building a fortune over time should read and heed Buffett's advice.
In the last quarter of 2023, NVIDIA's valuation was already speculative and bubblelicious. By mid January 2024, we began shorting NVIDIA stock, but got out quickly seeing the futility of the move. In our view, NVIDIA's rise to a price per share above $550 was indicia of a bubble. Yesterday, about 75 days later, NVIDIA was up by about 75%, trading at about $950 per share. Today NVIDIA lost some steam, but it remains very hot.
We thought NVIDIA was in bubble territory at $550 per share. We believed that it was in bubble territory at yesterday's $950 per share. We believe that it remains irrationally priced at today's closing of $925 per share. However, our beliefs are irrelevant. There's no limit as to how high NVIDIA can keep rising because financial markets are controlled by irrational humans.
Yesterday, NVIDIA's market capitalization was $2.38 trillion. Today it is $2.31 trillion. NVIDIA lost $70 billion in valuation overnight in 24 hours. That is a lot of money and shows the incredibly irrational figures and valuations that we are talking about.
NVIDIA may surpass $1,000 per share and reach the coveted $3 trillion valuation. NVIDIA is currently trading at 77 times earnings. It may go up to 100 times earnings, meaning that investors and speculators may be willing to pay $100 for every $1 NVIDIA makes in revenue.
For NVIDIA to reach the coveted $3 trillion valuation, it needs to increase in value by 30%. This could happen by this summer in just months, which sounds irrational. Yet, humans and their financial markets are predictably irrational.
The universe is a creative matrix or "creatix". The future has not been created yet. Stay tuned to see what happens and enjoy trying to make sense of it. AI is here to expand intelligence and paradoxically make humans both smarter and dumber simultaneously. AI will solve many problems and create even more problems to solve, each one incrementally harder. Ignorance, which is unlimited, will always remain the one and only problem of everything that exist today and that may exist tomorrow.
Stay tuned.
Creatix.one, AI for everyone.
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