The artificial-intelligence boom shows no sign of cooling. Nvidia [NASDAQ:NVDA], now worth $4.5trn, and OpenAI, reportedly valued at $500bn, have come to embody investors’ conviction that AI is not merely another technology cycle but a full-blown economic transformation.
Even as valuations stretch, profits and productivity are — for the moment — keeping pace. Unlike the dot-com mania of the late 1990s, the current enthusiasm rests on tangible earnings, surging capital expenditure and a widening base of beneficiaries.
The latest proof came from OpenAI’s announcement of a multi-year partnership with AMD, securing as much as 6 gigawatts of GPU capacity — roughly equivalent to several of the world’s largest data centres. The deal includes warrants allowing OpenAI to buy up to 10% of AMD shares at a token price, signalling the scale of its long-term compute needs. It follows a series of similarly grand announcements: a 10GW expansion of OpenAI’s Nvidia-powered infrastructure, a joint chip-design venture with Broadcom, and Anthropic’s $13bn fundraising round.
Far from tapering, AI’s capital-expenditure boom appears to be institutionalising.
The question for investors is whether all this spending will pay off. Nvidia’s market value now surpasses the GDP of Germany, and OpenAI’s paper valuation makes it the world’s most valuable private company. Yet, unusually for a “bubble”, Nvidia’s price-to-earnings ratio has compressed even as its share price has soared.
At around 32 times forward earnings, down from 36 in 2022, its multiple has fallen because profits are rising faster than its stock. Earnings per share have exploded, outpacing the rally and lending at least a veneer of rationality to the exuberance.
Bulls argue that this time really is different. But are they right?
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