Nvidia disconnects from technology stocks on Bitcoin rally and AI hype Nvidia disconnects from technology stocks on Bitcoin rally and AI hype Nvidia disconnects from technology stocks on Bitcoin rally and AI hype

Nvidia disconnects from technology stocks on Bitcoin rally and AI hype

Peter Garnry

Chief Investment Strategist

Summary:  Nvidia is a fantastic company with an incredible product but this year's rally in Bitcoin because of animal spirits earlier this year and recently the banking crisis has helped fuel the outlook and the share price up 79% year-to-date. The recent version of ChatGPT and comments from Bill Gates that the technology will change the world forever have also helped lift sentiment as these large language models behind ChatGPT are trained using ultra-fast GPUs such as those from Nvidia. Despite the rosy outlook investors are getting ahead of themselves and Nvidia's valuation is now significantly detached from technology sector posing a risk to investors.

A puzzling winner from the banking crisis and dangerous valuation

Nvidia shares are up 79% this year rallying initially with the rise Bitcoin and other high beta technology stocks such as Tesla. From the past we know that there is a strong link between Bitcoin and Nvidia as the company’s GPUs are used in Bitcoin mining and there is a consistent lag from falling or rising Bitcoin prices into the both the share price and revenue of Nvidia. The company itself has never acknowledged this link and refuse to talk about.

The banking crisis over the past two weeks has added more momentum to Bitcoin and for the first time since the launch of Bitcoin the community has a brewing crisis in the deposit system which is used to argue that it is more safe to have money in Bitcoin. Both gold and Bitcoin can at this point be viewed as proxies for the confidence in the banking system and higher Bitcoin prices help on mining activity and thus the market is betting on an improving outlook for Nvidia.

Nvidia share price | Source: Saxo
Bitcoin | Source: Bloomberg

Retail investors are significantly overweight Nvidia and technology stocks in general. Besides the rally in Bitcoin, the hype around AI and ChatGPT has also lifted sentiment, but Nvidia’s valuation has been pushed to alarming levels. Nvidia’s 12-month forward EV/Sales ratio is now 20.7x compared to an average of 5.9x for other highly profitable technology companies such as Microsoft, Apple, Alphabet, AMD, and Meta. This spread is a 3.5 times premium over high quality and growing technology companies. The spread to AMD which GPUs are a competing and good product is just dangerous underpinning that investors are getting too excited over Nvidia. We like the company, the technology, and the outlook (more on that below), but investors can pay a too steep a price even for good companies. Remember, equity returns are a function of changing expectations, so further gains in the share price will have to come from lifting already excessive expectations.

The prospects of ChatGPT

The hype around AI and ChatGPT had a small meaningful impact on the share price back in December before declining with the rest of technology stocks. This year the AI hype has extended as the fourth version of ChatGPT got closer (14 March) and this was the next contributing factor to Nvidia’s strong returns. The old version of ChatGPT was impressive but the new version comes with new exciting features such as visual input, which could be uploading a document and ask questions about it. It can even program a small Pong video game in 60 seconds. From the ChatGPT 4 presentation we can also see that it much better in its accuracy across a wide range of topics. The technology has even got Bill Gates to say that it will change our world.

The technology still comes with a large error and thus it is far from perfect and this is where the hype gets too much. Everyone, including us, are excited about ChatGPT, but it is not even close to AGI. But it could bring productivity gains in rudimentary tasks and be our digital assistant which will have some value. Even a new worker title has been invented because of ChatGPT and that is “prompt engineering”.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992