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While everything you say may be true, this shows a fundamental misunderstanding about how the modern stock market functions. How much value a company creates is

While everything you say may be true, this shows a fundamental misunderstanding about how the modern stock market functions. How much value a company creates is at best tangential and often completely orthogonal to how much the stock is worth. The stock market has always been a Keynesian beauty contest, but in the past few decades, strongly shaped and morphed by attention economies. A good example of this is DJT, a company which functionally doesn't do much anything, but in the last year has traded at wildly differing prices. P/E, EBITDA, etc, are all useless metrics in trying to explain this phenomenon. In other words, NVIDIA is in the red not because the company is suddenly doing worse, but because traders think other traders think it will trade down. That is a self fulfilling prophecy, but only so long as there is sufficient attention to drive that. The same works the other way around as well, so long as there is sufficient attention to drive the AI hype train upwards, related stocks will do well as well.

Cumpiler69 2y ago
>In other words, NVIDIA is in the red not because the company is suddenly doing worse, but because traders think other traders think it will trade down. Well put. People need to unterstand that some stocks are basically one giant casino poker table. There was a comment with a link here that a lot of Nvidia buyers don't even know what products Nvidia is making and they don't care, they just want to buy low and sell high. Insert old famous comment abut shoe shine boy giving investment advice to Wall Street stock traders.
Dalewyn 2y ago
Put more simply: The stock market is not a reflection of the economy. Wall Street is not Main Street.
- nejsjsjsbsb 2y ago
  Wall St is not Main St even if they price it perfectly.
- WJW 2y ago
  It's a reflection of expectations about the future economy. Obviously, such expectations are not always accurate because humans are quite fallible when trying to predict the future. This is even more true when there is a lot of hype about a certain product. Yesterdays price of (say) NVidia was based on the expectation that companies would need to buy N billion of USD of GPUs per year. Now Deepseek comes out and makes a point that N/10 would be enough. From there it can go two ways: - NVidia's expected future sales drop by 90%. - The reduced price for LLMs should allow companies to push AI into markets that were previously not cost effective. Maybe this can 10x the total available market, but since the estimated total available market was already ~everything (due to hype) that seems unlikely. - NVidia finds another usecase for GPUs to offset the reduced demand from AI companies. In practice, it will probably be some combination of all three. The real problems are not caused for the "shovel sellers" but for companies like OpenAI and Anthropic, who now suddenly have to compete against a competitor that can produce the same product at (apparently) a fraction of the price.
  - larschdk 2y ago
    I think it is more expectation about expectation. You buy/sell based on whether you expect other people to expect earn or lose. It is self-referential, hence irrational. If a new play enters and peoples expectations shift, that affects your expectation of value even though the companies involved are not immediately or directly affects.
  - Dalewyn 2y ago
    As already mentioned elsewhere, Jevon's Paradox will increase demand subsequent to improved efficiency. Yes, will not can. So if the stock market was reflective of the economy (future or the present) then stocks should go up, instead they're going down. Why? Because the stock market is not reflective of the economy. The stock market is essentially a reflection of societal perception. DJT which was brought up earlier is a great example, because the price of DJT has next to nothing to do with Trump's businesses and almost everything to do with how he is perceived (and remember there is no such thing as bad publicity). Personally I think the fall will be momentary and followed shortly by a climb to recovery and beyond, but who really knows. If you don't want to lose your money: Don't let the sensationalist financial journalists and pundits get to you, don't let big red numbers in your portfolio scare you, ignore traders (they all lose their money), don't sell your stocks unless you actually need that money for something right now, re-read your investment manifesto if you have one, and maybe buy the dip for shits and giggles if you have some spare cash laying around.
dogma1138 2y ago
I understand that part, hence why this is very much buy the dip for me.
- dist-epoch 2y ago
  You are assuming that the stock rose to this level "on merits" and now it falls due to "stupidness". Maybe part of the growth was also "stupidness", and in that case buying the dip is a mistake because the "merit" price (value) is still way below.
- Mordisquitos 2y ago
  You can buy the dip if you want, as long as you're aware that you're not betting that "stupid" traders are undervaluing NVIDIA's fundamentals. Rather, you're betting that "stupid" traders will again rally NVIDIA's share price significantly above this dip, and you will be a smart trader who will know when to sell what you bought. Good luck.
  - ido 2y ago
    And not just that, but even if AI's future is indeed as bright as the hype says (i.e. that NVIDIA's fundamentals are solid & that the market will eventually acknowledgment that after the fluctuations) they may still be wrong about the timeline. In the .com bust you could have "bought the dip" in the early 00s right after the crash started and still taken 5 years before you weren't in the red even on "good" (in hindsight) stocks like amazon, ebay, microsoft, etc. The big hype there was eCommerce - it turned out to be true! We use eCommerce all the time now, but it took longer than predicted during the .com boom (same for broadband internet enabling "rich web experience" - it came true, but not fast enough for some hyped companies in '00). And if you bought some of the darling stocks back then like Yahoo or Netscape that ended up not so great in hindsight you may have never recouped your losses.
- short_sells_poo 2y ago
  It's not just the usual herding behavior though. There's a convex response to news like this because people look at higher order effects like the growth of growth for stocks. Basically the DeepSeek story is about needing 40x fewer compute resources to run inference if their benchmarks are true. The dip doesn't mean that NVidia is now doomed, it simply means that if DeepSeek is legit, you need much less NV hardware to run the same amount of inference as before. Will the demand rise to still use up all the built hardware? Probably, but we went from a very stratospheric supply constraint to a slightly less stratospheric one, and this is reflected in the prices. Generally these moves are exaggerated initially, and it takes a bit of time for people to digest the information and the price to settle. It's an oscillating system with many feedback loops.
api 2y ago
Everything above the street level and physical economy is becoming gambling. There has always been a component of gambling to all investing, but that component now seems to utterly eclipse everything else. Merit doesn’t even register. Fundamentals don’t register.
scotty79 2y ago
Markets can stay irrational longer than you can stay solvent.

Cumpiler69 2y ago

>In other words, NVIDIA is in the red not because the company is suddenly doing worse, but because traders think other traders think it will trade down. Well put. People need to unterstand that some stocks are basically one giant casino poker table. There was a comment with a link here that a lot of Nvidia buyers don't even know what products Nvidia is making and they don't care, they just want to buy low and sell high. Insert old famous comment abut shoe shine boy giving investment advice to Wall Street stock traders.

Dalewyn 2y ago

Put more simply: The stock market is not a reflection of the economy. Wall Street is not Main Street.

nejsjsjsbsb 2y ago
Wall St is not Main St even if they price it perfectly.
WJW 2y ago
It's a reflection of expectations about the future economy. Obviously, such expectations are not always accurate because humans are quite fallible when trying to predict the future. This is even more true when there is a lot of hype about a certain product. Yesterdays price of (say) NVidia was based on the expectation that companies would need to buy N billion of USD of GPUs per year. Now Deepseek comes out and makes a point that N/10 would be enough. From there it can go two ways: - NVidia's expected future sales drop by 90%. - The reduced price for LLMs should allow companies to push AI into markets that were previously not cost effective. Maybe this can 10x the total available market, but since the estimated total available market was already ~everything (due to hype) that seems unlikely. - NVidia finds another usecase for GPUs to offset the reduced demand from AI companies. In practice, it will probably be some combination of all three. The real problems are not caused for the "shovel sellers" but for companies like OpenAI and Anthropic, who now suddenly have to compete against a competitor that can produce the same product at (apparently) a fraction of the price.
- larschdk 2y ago
  I think it is more expectation about expectation. You buy/sell based on whether you expect other people to expect earn or lose. It is self-referential, hence irrational. If a new play enters and peoples expectations shift, that affects your expectation of value even though the companies involved are not immediately or directly affects.
- Dalewyn 2y ago
  As already mentioned elsewhere, Jevon's Paradox will increase demand subsequent to improved efficiency. Yes, will not can. So if the stock market was reflective of the economy (future or the present) then stocks should go up, instead they're going down. Why? Because the stock market is not reflective of the economy. The stock market is essentially a reflection of societal perception. DJT which was brought up earlier is a great example, because the price of DJT has next to nothing to do with Trump's businesses and almost everything to do with how he is perceived (and remember there is no such thing as bad publicity). Personally I think the fall will be momentary and followed shortly by a climb to recovery and beyond, but who really knows. If you don't want to lose your money: Don't let the sensationalist financial journalists and pundits get to you, don't let big red numbers in your portfolio scare you, ignore traders (they all lose their money), don't sell your stocks unless you actually need that money for something right now, re-read your investment manifesto if you have one, and maybe buy the dip for shits and giggles if you have some spare cash laying around.

dogma1138 2y ago

I understand that part, hence why this is very much buy the dip for me.

dist-epoch 2y ago
You are assuming that the stock rose to this level "on merits" and now it falls due to "stupidness". Maybe part of the growth was also "stupidness", and in that case buying the dip is a mistake because the "merit" price (value) is still way below.
Mordisquitos 2y ago
You can buy the dip if you want, as long as you're aware that you're not betting that "stupid" traders are undervaluing NVIDIA's fundamentals. Rather, you're betting that "stupid" traders will again rally NVIDIA's share price significantly above this dip, and you will be a smart trader who will know when to sell what you bought. Good luck.
- ido 2y ago
  And not just that, but even if AI's future is indeed as bright as the hype says (i.e. that NVIDIA's fundamentals are solid & that the market will eventually acknowledgment that after the fluctuations) they may still be wrong about the timeline. In the .com bust you could have "bought the dip" in the early 00s right after the crash started and still taken 5 years before you weren't in the red even on "good" (in hindsight) stocks like amazon, ebay, microsoft, etc. The big hype there was eCommerce - it turned out to be true! We use eCommerce all the time now, but it took longer than predicted during the .com boom (same for broadband internet enabling "rich web experience" - it came true, but not fast enough for some hyped companies in '00). And if you bought some of the darling stocks back then like Yahoo or Netscape that ended up not so great in hindsight you may have never recouped your losses.
short_sells_poo 2y ago
It's not just the usual herding behavior though. There's a convex response to news like this because people look at higher order effects like the growth of growth for stocks. Basically the DeepSeek story is about needing 40x fewer compute resources to run inference if their benchmarks are true. The dip doesn't mean that NVidia is now doomed, it simply means that if DeepSeek is legit, you need much less NV hardware to run the same amount of inference as before. Will the demand rise to still use up all the built hardware? Probably, but we went from a very stratospheric supply constraint to a slightly less stratospheric one, and this is reflected in the prices. Generally these moves are exaggerated initially, and it takes a bit of time for people to digest the information and the price to settle. It's an oscillating system with many feedback loops.

api 2y ago

Everything above the street level and physical economy is becoming gambling. There has always been a component of gambling to all investing, but that component now seems to utterly eclipse everything else. Merit doesn’t even register. Fundamentals don’t register.

scotty79 2y ago

Markets can stay irrational longer than you can stay solvent.