Cuniberti Money Matters update Feb 1 2025

Nvidia and Apple are worth HOW MUCH?

Too big to fail is a term that hatched back during the bank and real estate blowup in 2008/09. It referred to the size of the major banks that controlled so much money, the Federal Reserve would have no choice but to bail them out. Not doing so would have, so they thought, brought down the entire financial `system` of the United States and possible even the entire civilized world. We will never know if that premise holds true as the government is convinced of such and will has lived by that mantra since 2008 and will likely continue to do so.

Enter today’s Money Matters article and I dare to use the “too big to fail” theory on another financial entity, that being applicable to an individual stock. Or possible even many such company stocks whose value has ballooned to previous unimaginable heights.

A company’s total value, which might also be thought of a company’s worth, is arrived at by taking the number of shares in the stock market multiplied by the current price of an individual share. For those wondering what a “share of stock is”, think of it like the pink slip of your car. Whereas you only have one pink slip for your car showing ownership, companies have many shares showing ownership. Your car can be said to have one share, and thereby one owner. Companies however create many shares so the ownership of that company can be distributed and traded back and forth with many owners.

For example, XYZ company may have 1,000,000.00 (one million) shares out in the public markets being actively traded every waking minute the stock market is open. If at any one time the share perhaps trades at two dollars, it could be said one million shares at two bucks apiece would put a value of the company at two million dollars.

Fast forward to last week in the stock market and semi-conductor chip market suffered a major blow to their stock prices on news a Chinese company had found a better way facilitate the hot artificial intelligence  (AI) market.

The largest chip maker NVidia, who arguably led the AI market, lost 600 billion in value in one day. Prior to the crash that hammered many chip stocks, the value of NVidia stood at 3.5 trillion. That’s with a “T” mind you.

Keep in mind, the entire value of all the money exchanged for all goods and services in one year (GDP) in the United States stands at about 27 trillion. Doing some quick math, the previous value of NVidia before last Monday was about 12% of GDP. NVidia’s one day loss of 600 billion was about 2.2% of GDP.

Does anyone see a problem with this?

Now understand that a company’s value rising and falling does not immediately affect the overall economy such as a default or bankruptcy of a large financial institution would. We saw how something like that can and did cause market upheavals back in 2008 when a firm called Lehman Brothers collapsed which started a chain of financial implosions that almost brought down the global financial system.

But when we see just one company’s net worth being the equivalent size of 12% of the entire U.S. economy as well as a one day sell off the size of almost 3% of that same economy, you have to wonder just how much air has been pumped into the stock market balloon by the professional gamblers of the world also known as “investors” in more polite company.

Nvidia slipped under APPLE, whose market cap sits at 3.54 trillion, about where NVidia was prior to the crash.

Considering Bank of America is only valued at about 350 billion (only right? LOL), and Lehman Brothers was valued at 111 billion when its collapse shook the entire world, you have to wonder with a company, (or actually a handful of companies)  valued at 35 times larger in today’s market place, should anyone feel a sense of calm in the company of these financial behemoths?

Whether the market value of a company can actually cause a financial implosion should something happen to the valuation, the amounts in question would likely cause some upset somewhere. Just how much damage an event like that would cause however, remains to be seen. And my guess is we will probably see what happens at some point.

“Watching the markets so you don’t have to”    

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(As mentioned please use the below disclaimer exactly) THANKS   (Regulations)    

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services.  Email: news@moneymanagementradio.com