Nvidia's stock is a magnet for gamblers
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Nvidia the company sits at the heart of an AI revolution with the potential to transform or even destroy life as we know it. Nvidia the stock, meanwhile, has become a meme around which the get-rich-quick dreams of degenerate gamblers are increasingly coalescing.
Why it matters: No other stock offers Nvidia's combination of immediate name recognition, enormous volatility, unrivaled liquidity, and, of course, meme value.
The big picture: Most companies boasting profits of more than $15 billion per quarter are relatively mature and predictable — think Berkshire Hathaway, Saudi Aramco, or Apple. Their profits this year will be broadly in line with their profits last year and next year.
- Nvidia, by contrast, had profits of $16.6 billion in the second quarter, an increase of more than $10 billion from the same period a year ago.
- No one knows whether such profitability will collapse as the AI bubble bursts; will be sustained as AI reaches into ever-greater parts of our lives; or will continue to grow at an eye-watering pace for years to come.
- That makes Nvidia stock almost impossible to value using traditional calculations. Working out the fundamental value of the stock — the present value of its future profits — requires plugging in estimates for future earnings that are realistically little more than blind guesses.
How it works: Every quarter, Nvidia's earnings — and its earnings calls — are scrutinized in real time for hints as to what they mean for the quarters and years to come, both in terms of financial performance and in terms of investor sentiment.
- Market dynamics also work to magnify the volatility of the stock. There are at least 10 ETFs that do nothing but trade Nvidia options on an intraday basis, for instance, appealing to investors who find Nvidia stock itself a bit boring yet who aren't part of the army of individuals who are trading Nvidia options themselves.
Follow the money: Night traders are the new day traders. Some of the wildest swings in the share price happen during the after-hours trading session — a place that sober institutional investors fear to tread, but that saw more than 44 million shares, collectively worth more than $5 billion, traded in a single hour on Wednesday afternoon.
- To put that in context, ExxonMobil sees about 13 million shares, worth about $1.5 billion, traded during a typical regular daytime session.
- The total volume of off-hours Nvidia trading, after the market closed on Wednesday but before it reopened on Thursday, came to 110 million shares, worth about $13 billion — and that doesn't include options trades.
The bottom line: In an era where the lines between gambling and investing are more blurred than ever, Nvidia has claimed its place as not only as the defining company of the decade, but also as the defining meme stock of the year.
