Nvidia Is a Must-Buy. Or Is It?
McNealy was musing about the «price to sales» ratio — an important measure of a company's value relative to how much cash it generates. A high ratio can be justified if investors think a company has room to grow; a low ratio typically signals that investors think the company is accurately valued.
Using that metric, analysts had gambled that Sun's stock was undervalued even when it was trading at more than 10 times its revenue — a value the business couldn't ultimately sustain. Even if Sun passed every dollar it was making at the time on to investors, it would have taken shareholders a decade to recover their investment.
«Do you realize how ridiculous those basic assumptions are?» McNealy told Businessweek. «You don't need any transparency. You don't need any footnotes. What were you thinking?»
The stock market is evoking similar sentiment among some investors, led by giant chipmaker Nvidia, the poster child of the exuberance around artificial intelligence. On Thursday, Nvidia's stock price rose to 31 times its sales.
Nvidia is very different from the hundreds of revenue-rich but profitless companies that the market cheered on in the late 1990s. The company, in Santa Clara, California, is wildly profitable: In the final three months of 2023, it generated more than $22 billion in revenue, up 22% from the quarter before and more than 250% higher than a year earlier.
On Thursday, the company's stock price shot up more than 16%, adding more than $200 billion to its market valuation and fueling a global stock
