Nvidia, Tesla, Bitcoin and other mythical creatures
My take on the Trump market darlings
Nvidia, Tesla and Bitcoin are some of the best performers of late. To me they represent the journey from real to mythical. But I would like to have some of that magic dust in my portfolio.
No 1. Nvidia
Nvidia is mostly real. This company designs semiconductor chips for AI applications, and therefore is part of the dream that AI Is "The First Technology That Has No Limit" as Bill Gates puts it. To be precise Nvidia doesn’t actually make any chips, because they are manufactured by their technology partner TSMC, so in effect they actually make money out of dreams.
AI Is "The First Technology That Has No Limit" Bill Gates
NVDA stock appreciated 190% this year to date and at $146.5 at the moment of writing is trading on an extremely pricey 12-months trailing P/E of 58x. However, considering the estimated growth in earnings per share (EPS) of 146% to $2.93 in January 2025 from $1.19 in January 2024 this is not an unimaginable stretch. This growth in earnings is aided by the estimated growth in revenues of 112% over the same period, which means margin expansion.
Jumping another 12 months ahead, same analysts forecast that this incredible growth in earnings will continue and, in fact, will accelerate to 149%. Exactly how is not entirely clear to me because those analysts also forecast growth in revenue of “only” 46% over the same period. They must expect some margin “turbo-expansion” for some reason.
Leaving that worry aside, with EPS of 4.36 as of January 2026, FY2 forward P/E will be 34x, which is still high but well justified for the company growing in triple digits. Double EPS again, and the stock is on a sensible FY3 P/E of 17x by 2027 by when it is probably growing double digits. This is how bulls justify it.
But hold on, doesn’t this assume that the stock price stays where it is today, at $146.5? For the stock to appreciate further, the earnings growth rate must remain higher for longer. That’s where the dream part starts.
According to UBS, Microsoft is the largest customer, accounting for 19% of Nvidia revenue last year, which means $12bn. Microsoft’s cost of goods sold (COGS) last year was around $70bn. COGS is everything that Microsoft paid to deliver their services, from all the equipment in their data centres to vending machines in their offices; and Nvidia was 12/70=17% of all spend. That’s a lot for chips, in my opinion. I don’t think there is much room for upside as a percentage of total. At the same time Microsoft’s revenue and COGS don’t grow near as much as Nvidia’s revenue. Hence, the market is concerned about overspending and diminishing ROI on AI.
Anyway, Nvidia’s discussion is mostly rational, let’s say 75% rational (that is 146% EPS growth/190% price YTD). With certain assumption on growth, you can almost justify the share price.
Source of all company financial data: https://finance.yahoo.com/quote/NVDA/
No 2. Tesla
Tesla is half real, half mythical. It is a centaur – a half man, half horse. The real business is electric vehicles, but the mythical part is Elon Musk.
At $340, Tesla is on an eye-watering trailing 12 months P/E of 93x. The earnings growth analysis is meaningless because this year earnings are declining. Next year, however, analysts expect EPS to recover to $3.26 from $2.48 this year, reporting over 30% growth. This is not representative of the underlying business growth as it is just a recovery from the dip this year. True growth rate of the business is 15-20% as the 2025 over 2024 revenue forecasts show. But no way anyone would pay 93x P/E, if not for a demigod Elon Musk.
Elon Musk is a genius who went all in with Trump and won big. Over the last month, that covers the US elections, TSLA stock is up 54%. That is without any change to the company’s fundamentals. This stock reaction is purely the market sentiment on the new mythical powers of Elon Musk. I’d say that with that growth and low margin profile it deserves about a quarter of its current P/E, so let’s call it 75% mythical.
Source of all company financial data: https://finance.yahoo.com/quote/TSLA/
No 3. Bitcoin
Bitcoin is totally mythical. There is no P/E and there is no valuation support. The price is purely what others are willing to pay for it. It is pure goodwill, even more than with Tesla.
But perversely, the lack of valuation support may be an advantage, because no one can ever ridicule the lofty earnings growth expectation, when there aren’t any earnings. Likewise, you can’t argue that the valuation multiple is too high because there is nothing to attach it to.
On the other hand, the number of Bitcoins is limited, while the demand is growing. With the approval of multiple ETFs, Bitcoin is fast becoming a recognised tool for portfolio diversification. The benefit is low correlation with other asset classes and the potential for its use as an inflation hedge.
Market sentiment surely exists. It is reflected in periods of exuberance and greed, for example, when psychological biases like “Fear of Missing Out” or FOMO drive valuations to extremes.
If sentiment exists, why not own a bit of this magic dust in its purest tradable form of Bitcoin in your portfolio?
Let me know your thoughts in the comments …
Disclosures
My articles represent my personal opinions and are provided for information purposes only. Their content is not intended to be an investment advice, or a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. I use information sources which I believe to be reliable, but their accuracy cannot be guaranteed. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors and, if in doubt, an investor should seek advice from a qualified investment advisor.