Nvidia (NVDA) has reached a $3 trillion market capitalization, surpassing Apple (AAPL) to become the second most valuable company in the US. The company's success has been propelled by the continued excitement around artificial intelligence. However, questions linger about the sustainability of this growth trajectory.

Deepwater Asset Management Managing Partner Doug Clinton joins the Morning Brief to share his perspective on Nvidia's soaring valuation. While acknowledging that the current market dynamics might appear "a little scary on the chart," Clinton believes that the AI rally is still in its early stages, and investors will continue to feel uneasy until the markets reach a point of being in a "true AI bubble."

As Nvidia gears up for its highly anticipated 10-for-1 stock split, Clinton highlights the company's ability to "continue to show business momentum," a testament to its resilience and adaptability in the face of rapidly evolving market conditions.

However, amid the AI frenzy, Clinton raises a question: "Can Nvidia maintain its dominant position, providing the brains to these artificial intelligence models? I think they can for the next 3-5 years."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

So let's keep on with it here with NVIDIA this morning as the company has tripled in value in about a year.

Is this growth sustainable?

As investors continue to reward the A I hype here with more.

We've got Doug Clinton Deepwater Asset Management managing partner here.

All right.

So let's start there.

Is it sustainable?

I think it is sustainable and you know, it always sounds smart to ask the question.

You know, when will this be over?

You look at the hockey stick that you just described Brad, it feels a little scary.

It looks a little scary on the chart.

But I think the reality is this, we are in inning three or four of this A I bull market.

I think that we are still early as uncomfortable as that sounds and maybe feels.

But I think it's going to feel uncomfortable all the way until we get to eventually being in a true A I bubble, which we think is kind of the culmination of this bull market and then people will stop talking about valuation altogether.

So that that's the odd sort of counterintuitive reality is we're worried right now that things might be over.

It's probably not over when we stop worrying.

That's when you should start worrying and also Doug just taking a step back.

We also have the stock split that's going to take place or be effective after the end of the trading day tomorrow.

Story continues

I guess we just talk about some of that near term excitement that build up that we've seen within a I, how big of a driver do you see that?

It's probably just going to be a very brief, a blip or move bump to the upside.

But how big of a driver do you see that in terms of just the narrative and excitement surrounding A I, I think the stock split for NVIDIA, as you said, Sean, I think that would just be kind of a blip here, obviously, that gets certain people excited mentally, you see a lower stock price and people feel like it may be cheaper even though it's not.

I think the reality though with NVIDIA is they continue to show business momentum.

I think that's really what is the most exciting piece of the entire story is that despite all of us worrying that eventually this demand for chips will slow down, we haven't really seen that slowdown happen yet and it may take longer to slow down than we think that's kind of the the new opinion that I think the street might think about.

And so as we're thinking about what the street is going to continue to rally on the back up here.

I mean, we just laid out the entirety of the companies that are really within this $3 trillion conversation.

And for NVIDIA, it's really been the artificial intelligence demand that they continue to cite and how people are essentially looking at them as this de facto A I play.

What about the market share that they need to retain in order to continue to maintain this type of sentiment in the street?

I think that's the right question going forward.

I mean, right now from a market share perspective, they likely have 80 to 90% of accelerated compute market share market share for chips that do power this A I revolution.

And I think going forward, they probably need to maintain share in that realm.

So the question really is number one, can A I, companies, companies that are building these models like Google, like open A I with their partnership with Microsoft?

Can they eventually generate revenue that makes this investment justified?

That's an outstanding question.

I think they will, it may take longer than investors hope but I think they will.

The second question to your point is can NVIDIA maintain its dominant position, providing the brains to these artificial intelligence models?

And I think they can for the next 3 to 5 years, I do think that we should pay attention to all of the hyper scalars building their own silicon.

There is going to be competition out there.

But I still think at least for the next three years, NVIDIA is going to be the go to company.