On Money & More – August 2024

“TO INFINITY, AND BEYOND!” In the Toy Story movies, Buzz Lightyear believes he can set a course to infinity. Buzz, of course, is a “space explorer” misplaced here on Earth with a cast of misfit toys. Perhaps Buzz is also an investor in NVIDIA. After all, the stock price has been headed “to infinity, and beyond!” Fortunately, at our recent companywide training, our Rogue Jet Boat captain didn’t share Buzz’s mindset and we all returned safely! We hope you are also having some fun this summer.

As new technologies come to market, the stock market has rewarded the winners, and handsomely so. Apple rose to prominence on the smartphone. Microsoft on the PC. Are GPUs, or graphics processor units, the next great technology? These chips, originally developed for video games, process images rapidly. This makes them the preferred building block for artificial intelligence applications. NVIDIA sits in the prime position for this new technology, and the stock price has benefited greatly. Just five years ago, NVIDIA was around a $150 billion market capitalization company, similar to Intel’s market cap today. Over the past few years, this stock has seen growth with very few historical comparisons. In the Second Quarter of 2024, NVIDIA briefly became the most valuable company in the global stock market—well over a $3 trillion of valuation! Unlike the internet bubble, however, this company’s earnings have also experienced explosive growth. The key questions for investors are, “Will the buyers’ appetite for NVIDIA chips remain after the initial buildout?” and “At what value does the stock price fully reflect their orbital earnings growth?”

These questions are relevant for all investors, as NVIDIA now represents nearly 7% of the S&P 500. In fact, the top 6 companies (Microsoft, NVIDIA, Apple, Amazon, Meta, Google) in the S&P comprise over 30% of this index! Stocks are historically concentrated, and investors should be cognizant of this risk. In such an environment, it is challenging to maintain diligence and diversification. After all, investors have become accustomed to gains in these securities, regardless of the prices paid. It’s prudent to note, however, that historically such concentrations have led to disastrous results for investors. Cutler believes that valuations matter, and we continue to advocate that our clients invest as such.

All opinions and data included in this commentary are as of July 12, 2024 and are subject to change without notice.  The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice including the asset allocation provided. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information is not an investment recommendation and should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.