In the video, Tom Lee, head of research at Fundstrat Global Advisors and a CNBC contributor, discusses Nvidia’s recent milestone of reaching a $4 trillion market capitalization. Lee emphasizes that Nvidia becoming the most valuable company in the S&P 500 is logical due to its scarcity and critical role in the AI ecosystem. He points out that despite a price-to-earnings multiple of around 30, Nvidia’s valuation is justified given its earnings visibility and potential for multiple expansion, especially as AI continues to drive growth.
Lee further explains that companies demonstrating durable and sustained earnings growth, such as Nvidia, Palantir, and Tesla, deserve higher valuation multiples. He notes that despite the market facing six major black swan events in the past five years, earnings have thrived, and the overall market multiple has actually decreased. This suggests that there is room for multiple expansion in the broader Nasdaq and S&P markets, driven by strong earnings growth and innovation.
Addressing concerns about market concentration, Lee acknowledges that the top ten companies, including Nvidia, make up a significant portion of the market cap. However, he argues that these companies also contribute disproportionately to earnings growth. He highlights that the S&P 500 benefits from being at the center of AI-driven capital expenditure and financial innovation, including developments in cryptocurrencies and blockchain technologies, which are becoming increasingly important drivers of earnings.
The conversation then shifts to Bitmain Emerging Technologies, where Lee recently became chairman. He clarifies that while the company’s reported shares and market cap might appear smaller on some platforms, the actual number of shares outstanding is much higher, leading to a multibillion-dollar valuation. Bitmain raised $250 million through a private investment in public equity (PIPE) to buy primarily Ethereum, aiming to leverage capital markets to grow its Ethereum holdings and capitalize on the premium in the market.
Lee elaborates on Ethereum’s growing significance, noting its role as a technology platform favored by Wall Street for stablecoins and tokenized assets. He mentions that Ethereum supports a large share of tokenized real-world assets and stablecoins, which are expected to grow substantially. Despite competition from other blockchain platforms, Ethereum remains the preferred choice for many financial institutions. Lee cautions retail investors about the high valuation multiples of Bitmain relative to the value of its Ethereum holdings but acknowledges the strategic logic behind the company’s approach.
