By Wilfred Frost, Sky News presenter
Nvidia became the first company to hit a market capitalisation of $4trn yesterday afternoon.
The question from here is whether the chip giant can occupy that rarefied atmosphere for long.
Speaking on The Master Investor Podcast with Wilfred Frost, legendary investor Jeremy Grantham, the founder and chairman of GMO, strikes a bearish tone towards hopes the company can hold that level long term.
Asked whether Nvidia could fall from its all-time high as much as Amazon did from its dot com bubble peak (-90%) at the turn of the century, Grantham says: “It’s not just possible. I don’t think it’s nearly probable. I think at the very least, it’s highly probable.
“It is the guy selling the shovels at the peak of the gold rush, isn’t it? This is one hell of a gold rush.”
Grantham is an expert in stock market bubbles who has correctly predicted the four biggest bubbles of the past five decades, but he acknowledges “you can’t possibly call a bubble or a bust to the right day, except once every several lifetimes by sheer luck.
“What you can do, though, is identify bubbles that will eventually burst.”
‘Fighting tooth and nail’
He expands on why he thinks we are at a turning point for America’s highest valued tech stocks, known as the Magnificent Seven, and that is due to rising competition.
“They have no magical monopoly power in the end. And one of the things that’s happening in the Mag 7 is AI is turning out to be the first to suck every one of the seven in,” he says.
“We have watched over the last years on things like the cloud where one or two or three go in, but now all seven realise that AI is the game. And that means competition.
“This means the history of the Mag-7 is divided into two halves. The half up until now where basically they each individually owned an area and the half going forward where increasingly they fight it out tooth and nail to see who is the biggest and best in AI.
So what does this mean for the broader S&P 500 – will it be lower in a decade than it is today as it was after the dot com peak? “Let’s put it this way, I think it’s quite likely.”
So where does he think people should invest?
“If you’re feeling up for taking risk, I would put a lot of money outside the US in equities.
“And if you’re feeling very nervous, I would have cash or some blend of those two.
“Sometimes everything goes together – that was not true in 2000. Real estate was very cheap. Bonds were very cheap. Inflation protected tips yielded 4.3%, can you believe it, right at the market peak. And foreign stocks were not that expensive.
“The same is true today. You could buy a portfolio of European, Canada, Australian, and so on, and the rest of the world. And you will do OK.”
Listen to the full episode of The Master Investor with Wilfred Frost here or wherever you enjoy podcasts.
