Is Nvidia too large to experience failure?

The inquiry weighing on many investors’ minds today is whether Nvidia is too substantial to undergo failure. This speculation arises as they anticipate Nvidia’s fourth-quarter 2023 earnings report after market hours. Nvidia, headquartered in California, has rapidly ascended to become the third-largest company on Wall Street, trailing only Microsoft and Apple. Its prominence is primarily attributed to its pivotal role in the artificial intelligence (AI) surge; Nvidia essentially monopolizes the AI chipmaking market in the United States.

With a market capitalization of $1.7 trillion and a year-to-date return of approximately 40% (the highest in the S&P 500), Nvidia faces significant expectations. Investors anticipate earnings per share of $4.59 and revenue of $20.378 billion, a substantial increase from $6.05 billion the previous year.

Daniel Newman, CEO of The Futurum Group, a technology advisory and research firm, suggests there’s a high likelihood of Nvidia surpassing expectations but doubts it will meet the lofty sentiment surrounding those expectations. The company has become synonymous with enormous earnings beats and considerable hype.

However, concerns linger about the sustainability of this success. Nvidia’s shares have surged fivefold since the end of 2022 amid the AI revolution, but sustaining such remarkable growth indefinitely seems improbable due to the law of large numbers. Newman explains that consistently impressive quarters may eventually appear less remarkable, and although competition is emerging gradually, Nvidia currently dominates the field.

Despite competition from companies like Intel and AMD, Nvidia remains the predominant player, especially given its crucial role in national security and the imperative for the US to lead in AI technology. The substantial investments in the CHIPS and Science Act underscore this strategic imperative.

Nvidia’s rapid expansion has led to significant investments from retirement savings accounts, institutions, and individual investors. CEO Jensen Huang’s proposal at the recent World Government Summit in Dubai, advocating for governments to take control of AI infrastructure, reflects the growing significance of AI in global governance.

In summary, Newman asserts that Nvidia’s resilience is assured, but its growth must maintain a staggering pace to retain investor interest. However, Intel’s impending announcements, particularly with OpenAI founder Sam Altman joining CEO Pat Gelsinger, could also attract investor attention.

Capital One aims to secure the top position as the largest credit card company in America. Here’s how this ambition might impact you:

What’s in your wallet? 

Capital One is making a substantial $35 billion wager that more of its credit cards will dominate the market. The bank’s announcement on Monday revealed its acquisition of Discover Financial Services (DFS) in a $35.3 billion all-stock agreement, aiming to create the largest US credit card company by loan volume if approved by regulators and shareholders.

But what does this mean for consumers?

In the short term, there won’t be significant changes. Since the deal isn’t expected to be finalized until late 2024 or early 2025, both Discover and Capital One customers should not expect immediate alterations to their accounts.

However, antitrust regulators may prolong the process. The Biden administration has taken a firm stance against mergers, attempting to thwart consolidation among corporate behemoths, from tech firms to airlines.

Looking ahead, there could be notable shifts.

Initially, all Capital One debit cards will transition from Mastercard to the Discover network “within the first few years” following the deal’s completion, according to Richard Fairbank, Capital One’s founder and CEO, as mentioned in an investor call on Tuesday morning.

Discover cards are already widely accepted, with coverage at 99% of US merchants allowing credit card purchases. Fairbank emphasized that this share is often underestimated.

Additionally, consumers might face higher interest rates.

Capital One has traditionally targeted customers with credit scores in the 600s range, considered subprime. These borrowers, deemed riskier, typically incur higher interest rates compared to those with higher credit scores.

According to a recent report from the Consumer Financial Protection Bureau, Capital One is one of 15 credit card issuers offering at least one card with a maximum interest rate exceeding 30%.

Amazon is set to replace Walgreens in the Dow Jones Industrial Average.

Walgreens Boots Alliance is being replaced by Amazon in the 30-stock Dow Jones Industrial Average, as reported by my colleague Samantha Delouya.

S&P Dow Jones Indices, the manager of the index, stated on Tuesday that the change aims to reflect the “evolving nature of the American economy” by enhancing the Dow’s exposure to consumer retail.

This adjustment means that investors tracking the Dow Jones Industrial Average will now incorporate Amazon’s stock performance into their portfolios.

Amazon becomes the third member of the “Magnificent Seven,” a group of high-performing tech stocks, to join the Dow 30, alongside Apple and Microsoft. The remaining four companies in this group—Meta, Nvidia, Tesla, and Alphabet—are not part of the index, although all seven stocks are included in the broader S&P 500 index.

Historically, inclusion or exclusion from the Dow has not significantly impacted companies’ stock performances. However, being part of the index, established in 1896, carries a certain prestige. The exclusive group aims to mirror the most significant companies in the US economy, explaining its heavy emphasis on technology stocks today.

The change is scheduled to take effect before the opening of the US stock market on Monday, February 26.