Fairytale U.S. markets being propped up by just one stock: NVDA
03/11/2024 // Ethan Huff // Views

The stock market in the United States continues to hit new all-time highs despite a shaky retail and commercial sector, the reason being one stock in particular that appears to be propping the whole thing up: Nvidia (NVDA).

The tech sector as a whole is technically the only reason the stock market appears "healthy" with Nvidia leading the pack, followed by Microsoft Corp. (MSFT), Broadcom Inc. (AVGO), Arista Networks (ANET) and a handful of others – but is it sustainable?

It turns out that the phrase "this is nuts" marks what many investors and financial experts are saying about current market conditions, which simply make no sense. While it is true that Nvidia is growing by leaps and bounds with its chip sales and advancements in AI (artificial intelligence), what about the others?

According to Lance Roberts of RetailInvestmentAdvice.com, Nvidia's competitors should not be growing at the same rate as its own stock, and yet many of them are.

"In a normal functioning market, Nvidia doing amazingly is bad news for competitors such as AMD and Intel," reported Yahoo! Finance. "Nvidia is selling more of its chips, meaning fewer sales opportunities for rivals. Shouldn’t their stocks drop?"

"Just because Meta owns and uses some new Nvidia chips, how is that going to positively impact its earnings and cash flow over the next four quarters? Will it at all?"

The answer is irrelevant because investors are gobbling up those stocks just like they are Nvidia, which has all the makings of a bubble market that will eventually pop.

"There is little doubt about Nvidia's earnings and revenue growth rates," Roberts says. "However, to maintain that growth pace indefinitely, particularly at 32x price-to-sales, means others like AMD and Intel must lose market share."

"However, as shown, numerous companies in the S&P 1500 alone are trading well above 10x price-to-sales. (If you don't understand why 10x price-to-sales is essential, read this.) Many companies having nothing to do with Nvidia or artificial intelligence, like Wingstop, trade at almost 22x price-to-sales."

(Related: Will the "biggest crash of our lifetime" occur in 2024? Some economists think so.)

What goes up must come down, right?

Right now, the retail investment world seems to be pegging its horse to these high-performing stocks as if there is no risk of them ever not being high-performing stocks. The reality is that the current bubble market, which never truly crashed from the 2008 crisis, is probably going to pop at some point.

While it is true that the U.S. stock market only goes up, generally speaking, with a few dips and minor crashes here and there, the financial system that underpins it has a shelf life – and one that would seem to be close to its expiration.

Roberts says that there is likely to be some market downside in the near future, which he expects to be followed by new all-time highs next year and beyond. Or, it could be the case that America's financial empire is reaching its end and that what goes up must come down – and possibly stay down as the world's power structure shifts away from U.S. dominance.

Considering the ongoing commercial real estate collapse, the escalating banking crisis, the Evergrande liquidation, the world's shift away from the U.S. dollar and into BRICS, it may not be long before the U.S. stock market plunges with no more can-kicking ways to boost it back up again.

"Remember the 'nifty fifty' stocks from the 1970s – well, breadth in the stock market had narrowed to just these 50 stocks before the market dumped in 1973-74," one commenter noted.

"This time around, we have one stock instead of 50."

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