Deutsche Bank analysts have raised concerns about the market cap of Nvidia Corporation (NASDAQ:NVDA), suggesting that it may be contributing to a potential bubble in the U.S. equities market.
Nvidia's Surge Fuels Concerns Of A US Equity Bubble
Deutsche Bank’s research note, authored by analysts Jim Reid, Henry Allen, and Rajsekhar Bhattacharyya, raises the question of whether the U.S. equities market is in a bubble. The report highlights Nvidia’s substantial market cap as a potential contributing factor to this situation, reported Fortune.
U.S. could be considered a “bubble risk,” it said.
Check out the current price of NVDA stock here.
The report highlights that Nvidia, along with Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), now makes up 30% of the S&P 500's total market value — a concentration surpassing the dotcom bubble of 2000 and raising concerns of distortion in U.S. equities.
The analysts point out that Nvidia’s market cap now exceeds that of every country’s listed stock exchange, except for the U.S., China, Japan and India, a trend that has historically not been the case.
The analysts stated, “The U.S. is now nearly five times larger than China (in second) and around 20 times larger than Europe's larger markets.” They added that this doesn’t necessarily mean a bubble, but it does indicate we are in uncharted territory.
Over the past 5 days, the S&P 500 experienced a 0.22% drop, while Nvidia’s shares plummeted by 6.19%, as per data from Benzinga Pro. This significant decline in Nvidia’s stock value has sparked concerns about the overall stability of the U.S. equities market.
Soaring Treasury Yields Weigh on High P/E Tech Stocks
Nvidia, with its astonishing growth and a market cap of $4.2 trillion, is now worth more than the equity markets of five of the seven G7 nations—Italy, Germany, France, the U.K., and Canada.
Earlier this week, Nvidia’s stock was trading lower due to a broader tech sell-off triggered by rising long-term interest rates. The rise in the 10-year Treasury yield to nearly 5% put pressure on high-growth, high P/E stocks, making future earnings seem less valuable and leading to a retreat from tech sector leaders.
Concerns about the impact of rising long-term interest rates on certain stocks were also expressed by Gary Black, Managing Director of The Future Fund LLC. He warned that high P/E stocks like Nvidia, Tesla (NVDA: TSLA) and Palantir (NASDAQ:PLTR) could be significantly affected by the rise in 10-year Treasury yields.
Benzinga's Edge Rankings place Nvidia in the 94th percentile for quality and the 98th percentile for growth, reflecting its strong performance in both areas. Check the detailed report here.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
