The Silicon Specter: A Bubble, or Mere Effervescence?

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The market, that capricious beast, trembles. A chill wind, whispering of “overvaluation,” has swept through the tech districts, causing a most unsettling agitation amongst the portfolio managers and, naturally, the pigeons. For weeks now, the Nasdaq Composite (^IXIC 1.79%) has performed a sort of weary dance, a shuffling of feet that amounts to little more than a change of socks. From 23,348 to 23,461 – a gain so minuscule it would be lost in the rounding errors of a provincial accountant. One suspects the numbers themselves are embarrassed.

Consider Microsoft, a behemoth whose shares recently suffered a most undignified tumble after announcing profits that grew by a rather robust 60% year over year. A 10% decline! As if the market, in its infinite wisdom, deemed such prosperity…improper. It is as if the company had committed the sin of too much success. One wonders if they’ve offended some ancient market deity with their abundance.

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The elders amongst us recall the year 2000, a time of digital delirium and spectacular collapses. The Nasdaq, then a vibrant, if somewhat reckless, youth, began a descent into the abyss, shedding value like a moulting bird. Companies like Cisco Systems (CSCO +1.82%), Intel, and Oracle – once hailed as the architects of the future – crumbled, their valuations reduced to dust motes dancing in the sunbeams. To fall by 80% requires not a mere doubling of investment to recover, but a quadrupling! A cruel arithmetic indeed.

And so, the specter of a bubble haunts the present day. But Mr. Jensen Huang, the esteemed CEO of Nvidia (NVDA 3.45%), a company whose market capitalization rivals that of small nations, has dared to suggest that this time, things are…different. He spoke of Moore’s Law, that venerable principle dictating the doubling of computing power every eighteen months, as being…shattered. A bold claim! One almost expects a thunderclap to accompany such pronouncements. He posits a world undergoing three simultaneous platform shifts. A most unsettling thought for those of us who struggle to manage even one.

Nvidia’s CEO: “We see something very different”

First, a migration from the pedestrian world of CPUs to the more…spirited realm of GPUs. It appears the very foundations of computation are being reshaped, with GPUs assuming a position of dominance. The implications for cloud computing are, naturally, immense. A “multi-hundred-billion-dollar tailwind,” he claims. One suspects this “tailwind” will blow a few hats off as well.

Secondly, a “tipping point” in which artificial intelligence is not merely enhancing existing applications, but birthing entirely new ones. Generative AI, he says, is replacing classical machine learning in the mundane tasks of search rankings and ad targeting. Even content moderation is being entrusted to these digital automatons. One shudders to think what they might deem “improper” content.

He cited Meta’s modest gains – a 5% increase in Instagram conversions, a 3% bump on Facebook – thanks to their JEM marketing tool. A small victory, perhaps, but a victory nonetheless. He predicts “substantial revenue gains for hyperscalers.” Which is to say, more money for those who already have plenty. The natural order of things, one supposes.

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A valuation check

Mr. Huang spoke eloquently of AI’s potential to disrupt multi-trillion-dollar industries, but remained curiously silent on the matter of valuations. A most peculiar omission, one might think. And yet, the numbers themselves tell a story. The average price-to-earnings (P/E) ratio of the Nasdaq-100 stands at 32.9 – a slight decline from the previous year. Hardly the feverish heights of 60 reached in 2000.

Back then, Cisco, the titan of the age, boasted a P/E ratio of 472! Today, Nvidia’s P/E ratio is a mere 47.7. A significant difference. And consider this: in 2000, only 14% of dot-com companies were profitable. Today, the tech giants leading the AI revolution are…astonishingly profitable. Nvidia’s profits grew by 65% year over year, Microsoft’s by 60%. Even Alphabet‘s revenue topped $100 billion, despite a rather bothersome antitrust fine.

While anything is possible, the valuations do not, at present, support the fears of a tech bubble. The market’s recent lull allows these rapidly growing companies to…grow into their valuations. A most opportune moment for investment, perhaps. A rally that may endure for years. One suspects, however, that the market, like a mischievous spirit, will have the last laugh.

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2026-02-03 21:12