Nvidia leans into the danger of a bad-news spiral

Investors, though, have been somewhat reserved. When the market closed on Wednesday, Nvidia’s enterprise was valued at 43 times its trailing four quarters of free cash flow. That compares to rivals like Broadcom AVGO.O at 53 times and AMD AMD.O at 96 times, implying a meaningful discount.

AMD, in particular, is expected to grow quickly, with Wall Street estimating it will nearly triple cash generation next year, according to Visible Alpha. Yet Nvidia’s anticipated growth at far larger scale is hardly less impressive. One creeping issue is that both established rivals like Broadcom and in-house silicon like OpenAI’s newly unveiled “Jalapeno” are poised to take an increasing piece of the AI pie. But Huang is also adding further risks.

The AI boom has been very good to Nvidia NVDA.O boss Jensen Huang. These days, he’s trying to return the favor. The $5 trillion chipmaker’s products are still the gold standard for powering chatbots, with revenue more than doubling year-over-year to $96 billion for the three months ending in July 26, according to results unveiled Wednesday evening. Yet Nvidia increasingly underwrites this roaring demand through backstops and baroque financial engineering. So long as business keeps up, those promises look manageable. The risk is that bad news becomes self-reinforcing.