This is the way the stock market always works. Investors (more appropriately, speculators) drive up the darlings of a new technological era to exorbitant heights, based on the super high growth rate of their products and or services.

The mistake that always gets made, is that they extrapolate that those gains and the sales and earnings growth rate, will continue on into the future. It never does. Even the more successful companies who create new products and reinvent themselves, still can’t maintain the original explosive growth rate, if for no other reason, than the “law of large numbers.”

Reading Wolf Richter’s piece comparing NVDA & TSLA is a perfect example. He gets it right and covers it well but the one Minor criticism I have(I totally agree that NVDA’s rise will follow the same fate as TSLA) is his use of the term “state of mind” to describe the phenomena.

I don’t disagree but feel a better explanation is one that explains these trends are unsustainable because of the math. A total addressible market is always bound by some limit(even if that limit isn’t easily quantifiable) and competition and market saturation play out in every cycle.

The stocks don’t run out of steam because of, a state of mind of the investors, they run out of steam because it eventually becomes obvious that the valuations no longer relect any semblance of reality because the growth is unsustainable.

Competition, market saturation etc. always kick in. Just as TSLA will continue to sell cars and NVDA GPU’s, neither have the sustainablility of exponential growth to warrant ever higher multiples of their stock prices over their earnings.

Nvidia, the WTF Chart of the Year. Tesla also Had WTF Charts of the Year before Shares Plunged