Business

Nvidia is facing its biggest challenge yet: The law of large numbers

Published

3 months ago

August 30, 2025

Nvidia’s Q2 release on Aug. 27 marked by far the biggest event of this earnings season, and the AI chip giant scored another phenomenal performance. For the three months ended July 28, Nvidia beat analysts’ already Brobdingnagian forecasts for sales, revenue, and guidance, though a shortfall in data-center sales proved a slight disappointment that sent shares around 1% lower in midmorning trading on Aug. 28. Some Wall Street analysts also expressed concerns over a disclosure in Nvidia’s 10-Q that for its trademark franchise—chip sales to data centers—it’s collecting 44% of its revenues from just two hyperscalers, assumed to be Microsoft and Meta Platforms.

If you’re a Nvidia investor, or pondering buying its shares now, it’s important to recognize that the threat to getting anything resembling big returns isn’t that heavy dependence on a few big customers, or Chinese rivals playing catch-up, but the law of large numbers. Put simply, Nvidia’s profits and market cap are already so gigantic that to reward shareholders, it would need to swell to a size dwarfing where any tech giant stands today, and add earnings at a rate, measured in billions of dollars, that no other major, established enterprise has ever achieved.

The numbers Nvidia must hit to make you money are daunting

Let’s assume the minimum return you’d want from Nvidia’s stock is 10% annually. Keep in mind that you’d be betting on a player that will only pay off if it waxes extremely fast from an already elevated P/E and market cap, and so you’re taking a big risk that will happen—hence, even 10% looks like a pretty unspectacular win. Right now, Nvidia famously boasts the largest valuation by far of any U.S. company, at $4.44 trillion, beating second-ranking Microsoft by 19%. Over the past four quarters, it’s earned $86.6 billion, putting its P/E at 51. That doesn’t sound horribly expensive—at first. But once again, the big challenge is that law of large numbers, the virtual impossibility that when you’re already that big you’ll get hugely bigger, and especially when you need to add all those new gobs of profits at an extremely rapid rate.

Hence, to deliver that 10% annual return, Nvidia would need to double its market cap by September 2032 to $8.88 trillion. (Nvidia just announced a $60 billion share buyback and will keep repurchasing shares, but the numbers shouldn’t be big relative to its valuation; so to simplify, I’m using a model where the share count is constant.) Let’s assume that over that span, its P/E falls from the current 51 to a still formidable 30, a number positing that Nvidia would still have years of strong growth ahead even after 2032. In that scenario, the required bogey for net earnings tallies to $293 billion (the $8.88 trillion market cap divided by the P/E of 30).

If inflation averages 2.5% for the next seven years, that $293 billion equates to $246 billion in today’s dollars. That’s 112% more than the $116 billion that Alphabet, the S&P 500’s top earner, posted over the past four quarters, and almost 150% above what Microsoft registered for its 2025 fiscal year ended in June. Ringing the bell mandates an average yearly addition to profits of $26 billion. In the past three fiscal years, Microsoft and Alphabet have shown blowout profit expansion, but not on that scale; both lifted the bottom line by between $13 billion and $14 billion annually, half of what Nvidia would need to notch for delivering that 10% minimum gain.

The problem: Nvidia’s stock can only pay off if a number of heroic projections that CEO Jensen Huang is making actually happen. Huang is forecasting that spending on AI infrastructure by the hyperscalers balloons from around $600 billion a year today to “$3 to $4 trillion … by the end of the decade.” At the top end, that’s a growth rate of around 40% a year. That prediction assumes that the capital-expenditure budgets for the likes of Microsoft and Meta will absolutely explode, implying that they, too, will hit a new escape velocity in revenue expansion. Nvidia’s margins would also need to remain extremely high for the big-win-for-investors playbook to become reality.

A warning sign is that Nvidia’s year-over-year quarterly growth, though still huge, is already falling. Certain laws of gravity always apply when it comes to business strategy, including that if a business is profitable enough, competition will increase. AI infrastructure is so hugely profitable that rivals will flood the market, taking share from Nvidia and eroding its margins. It will need to diversify its customer base substantially from the high concentration on a couple of giant customers to keep racing ahead, and competitors will be vying for the same big clients.

Companies, even great ones, don’t keep near-monopoly positions for long. That’s just not the way markets work. The best bet is that Nvidia remains a great, fast-growing, and highly profitable enterprise. That’s a hugely impressive feat. But it’s not nearly enough to beat the law of large numbers.

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Business

SpaceX to offer insider shares at record-setting valuation

Published

20 minutes ago

December 5, 2025

Jace Porter

SpaceX is preparing to sell insider shares in a transaction that would value Elon Musk’s rocket and satellite maker at a valuation higher than OpenAI’s record-setting $500 billion, people familiar with the matter said.

One of the people briefed on the deal said that the share price under discussion is higher than $400 apiece, which would value SpaceX at between $750 billion and $800 billion, though the details could change.

The company’s latest tender offer was discussed by its board of directors on Thursday at SpaceX’s Starbase hub in Texas. If confirmed, it would make SpaceX once again the world’s most valuable closely held company, vaulting past the previous record of $500 billion that ChatGPT owner OpenAI set in October. Play Video

Preliminary scenarios included per-share prices that would have pushed SpaceX’s value at roughly $560 billion or higher, the people said. The details of the deal could change before it closes, a third person said.

A representative for SpaceX didn’t immediately respond to a request for comment.

The latest figure would be a substantial increase from the $212 a share set in July, when the company raised money and sold shares at a valuation of $400 billion.

The Wall Street Journal and Financial Times, citing unnamed people familiar with the matter, earlier reported that a deal would value SpaceX at $800 billion.

News of SpaceX’s valuation sent shares of EchoStar Corp., a satellite TV and wireless company, up as much as 18%. Last month, Echostar had agreed to sell spectrum licenses to SpaceX for $2.6 billion, adding to an earlier agreement to sell about $17 billion in wireless spectrum to Musk’s company.

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The world’s most prolific rocket launcher, SpaceX dominates the space industry with its Falcon 9 rocket that launches satellites and people to orbit.

SpaceX is also the industry leader in providing internet services from low-Earth orbit through Starlink, a system of more than 9,000 satellites that is far ahead of competitors including Amazon.com Inc.’s Amazon Leo.

SpaceX executives have repeatedly floated the idea of spinning off SpaceX’s Starlink business into a separate, publicly traded company — a concept President Gwynne Shotwell first suggested in 2020.

However, Musk cast doubt on the prospect publicly over the years and Chief Financial Officer Bret Johnsen said in 2024 that a Starlink IPO would be something that would take place more likely “in the years to come.”

The Information, citing people familiar with the discussions, separately reported on Friday that SpaceX has told investors and financial institution representatives that it is aiming for an initial public offering for the entire company in the second half of next year.

A so-called tender or secondary offering, through which employees and some early shareholders can sell shares, provides investors in closely held companies such as SpaceX a way to generate liquidity.

SpaceX is working to develop its new Starship vehicle, advertised as the most powerful rocket ever developed to loft huge numbers of Starlink satellites as well as carry cargo and people to moon and, eventually, Mars.

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Business

U.S. consumers are so strained they put more than $1B on BNPL during Black Friday and Cyber Monday

Published

51 minutes ago

December 5, 2025

Jace Porter

Financially strained and cautious customers leaned heavily on buy now, pay later (BNPL) services over the holiday weekend.

Cyber Monday alone generated $1.03 billion (a 4.2% increase YoY) in online BNPL sales with most transactions happening on mobile devices, per Adobe Analytics. Overall, consumers spent $14.25 billion online on Cyber Monday. To put that into perspective, BNPL made up for more than 7.2% of total online sales on that day.

As for Black Friday, eMarketer reported $747.5 million in online sales using BNPL services with platforms like PayPal finding a 23% uptick in BNPL transactions.

Likewise, digital financial services company Zip reported 1.6 million transactions throughout 280,000 of its locations over the Black Friday and Cyber Monday weekend. Millennials (51%) accounted for a chunk of the sizable BNPL purchases, followed by Gen Z, Gen X, and baby boomers, per Zip.

The Adobe data showed that people using BNPL were most likely to spend on categories such as electronics, apparel, toys, and furniture, which is consistent with previous years. This trend also tracks with Zip’s findings that shoppers were primarily investing in tech, electronics, and fashion when using its services.

And while some may be surprised that shoppers are taking on more debt via BNPL (in this economy?!), analysts had already projected a strong shopping weekend. A Deloitte survey forecast that consumers would spend about $650 million over the Black Friday–Cyber Monday stretch—a 15% jump from 2023.

“US retailers leaned heavily on discounts this holiday season to drive online demand,” Vivek Pandya, lead analyst at Adobe Digital Insights, said in a statement. “Competitive and persistent deals throughout Cyber Week pushed consumers to shop earlier, creating an environment where Black Friday now challenges the dominance of Cyber Monday.”

This report was originally published by Retail Brew.

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Business

AI labs like Meta, Deepseek, and Xai earned worst grades possible on an existential safety index

Published

1 hour ago

December 5, 2025

Jace Porter

A recent report card from an AI safety watchdog isn’t one that tech companies will want to stick on the fridge.

The Future of Life Institute’s latest AI safety index found that major AI labs fell short on most measures of AI responsibility, with few letter grades rising above a C. The org graded eight companies across categories like safety frameworks, risk assessment, and current harms.

Perhaps most glaring was the “existential safety” line, where companies scored Ds and Fs across the board. While many of these companies are explicitly chasing superintelligence, they lack a plan for safely managing it, according to Max Tegmark, MIT professor and president of the Future of Life Institute.

“Reviewers found this kind of jarring,” Tegmark told us.

The reviewers in question were a panel of AI academics and governance experts who examined publicly available material as well as survey responses submitted by five of the eight companies.

Anthropic, OpenAI, and Google DeepMind took the top three spots with an overall grade of C+ or C. Then came, in order, Elon Musk’s Xai, Z.ai, Meta, DeepSeek, and Alibaba, all of which got Ds or a D-.

Tegmark blames a lack of regulation that has meant the cutthroat competition of the AI race trumps safety precautions. California recently passed the first law that requires frontier AI companies to disclose safety information around catastrophic risks, and New York is currently within spitting distance as well. Hopes for federal legislation are dim, however.

“Companies have an incentive, even if they have the best intentions, to always rush out new products before the competitor does, as opposed to necessarily putting in a lot of time to make it safe,” Tegmark said.

In lieu of government-mandated standards, Tegmark said the industry has begun to take the group’s regularly released safety indexes more seriously; four of the five American companies now respond to its survey (Meta is the only holdout.) And companies have made some improvements over time, Tegmark said, mentioning Google’s transparency around its whistleblower policy as an example.

But real-life harms reported around issues like teen suicides that chatbots allegedly encouraged, inappropriate interactions with minors, and major cyberattacks have also raised the stakes of the discussion, he said.

“[They] have really made a lot of people realize that this isn’t the future we’re talking about—it’s now,” Tegmark said.

The Future of Life Institute recently enlisted public figures as diverse as Prince Harry and Meghan Markle, former Trump aide Steve Bannon, Apple co-founder Steve Wozniak, and rapper Will.i.am to sign a statement opposing work that could lead to superintelligence.

Tegmark said he would like to see something like “an FDA for AI where companies first have to convince experts that their models are safe before they can sell them.

“The AI industry is quite unique in that it’s the only industry in the US making powerful technology that’s less regulated than sandwiches—basically not regulated at all,” Tegmark said. “If someone says, ‘I want to open a new sandwich shop near Times Square,’ before you can sell the first sandwich, you need a health inspector to check your kitchen and make sure it’s not full of rats…If you instead say, ‘Oh no, I’m not going to sell any sandwiches. I’m just going to release superintelligence.’ OK! No need for any inspectors, no need to get any approvals for anything.”

“So the solution to this is very obvious,” Tegmark added. “You just stop this corporate welfare of giving AI companies exemptions that no other companies get.”

This report was originally published by Tech Brew.

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