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Chip maker’s valuation is nowhere near those seen in dot-com boom, but recent gains have erased the stock’s discount relative to its projected earnings

Is a great business worth any price? Nvidia NVDA -3.22%decrease; red down pointing triangle investors finally seem to be asking themselves that question.

The chip maker powering the artificial-intelligence revolution blew past $3 trillion in market capitalization earlier this month barely three months after passing $2 trillion. It even became the world’s most valuable company earlier this week, briefly surpassing Microsoft and Apple. That seems to have given investors some pause; Nvidia’s share price has slipped nearly 7% since trading resumed after the Juneteenth holiday.

Still, with a value of a little over $3.1 trillion as of Friday’s close, Nvidia is hardly cheap. That is merely 2% below that of Apple, a company with more than 2½ times Nvidia’s trailing 12-month free cash flow. The stock is also now at nearly 45 times projected earnings for the next four quarters. That is 11% above its five-year average multiple and about 35% higher than what the stock was fetching when the company’s market value first crossed the $2 trillion threshold in March.

Nvidia’s sharp rise—and big gains made by stocks such as Dell, Super Micro and Broadcom that are also seen as AI enablers—has spawned inevitable comparisons to the dot-com bubble that burst nearly a quarter of century ago. There are some parallels: The early days of the Internet favored companies selling the necessary hardware to get homes and businesses online. Cisco CSCO 1.22%increase; green up pointing triangle, IBM, Lucent Technologies and Intel were four of the 10 most valuable companies on the market by the end of 1999, according to data from S&P Global Market Intelligence. Cisco overtook Microsoft to become the most valuable public company about four months later.

Cisco’s stock price is about 40% below that level now, adjusted for splits. That seems like a cautionary tale for Nvidia’s shareholders. But there are also some important differences to consider. Cisco swelled to a much frothier multiple of 131 times forward earnings at its peak in March 2000, according to FactSet data. And that was on less impressive financial performance, as the company’s revenue grew 55% in the fiscal year that ended that July with an operating margin of 17%, down from 24% the year before, according to data from S&P Global Market Intelligence. Nvidia’s trailing 12-month revenue at the end of the April quarter was more than triple that of the same period last year, while its operating margin has more than doubled in that time to 60%.

Cisco’s business also cratered the following year as orders from financially shaky customers that had been propping up its bookings quickly vanished. It actually lost money in the 2001 fiscal year after earning $3.2 billion the year before.

“This may be the fastest deceleration any company of our size has ever experienced,” Cisco’s then chief executive, John Chambers, said in the company’s earnings release in May of that year.

Such a drastic turn is highly unlikely for Nvidia. Deep-pocketed tech giants such as Microsoft, Google and Amazon that operate extensive cloud computing networks account for more than 40% of the company’s data-center sales, and they all have clearly signaled plans to spend even more in the coming year.

“Unlike the ‘dot-com boom’ that was funded by risky debt-taking, genAI deployment is a mission-critical race between some of the best-funded (cloud) customers,” Vivek Arya of BofA Securities wrote in a note to clients this week.

Nvidia will also have more software revenue coming into its mix as the growing base of its AI systems will necessitate more use of its software tools by developers.

That doesn’t necessarily make Nvidia’s shares safe at their current level, though. The stock has seen a big influx of individual investors since the company’s latest financial results last month. Daily retail inflow has averaged nearly $141 million since the earnings compared with a daily average of about $39 million during the month prior, according to Vanda Research.

Sell-side analysts are also getting rather exuberant. Several have pushed up their price targets since the stock’s June 10 split. And at least four of those targets are now at $160 and higher, which would put Nvidia’s market capitalization near $4 trillion at its current share count. Nvidia may be the top gun of AI, but investors should be careful not to write checks the stock can’t cash.

The longtime rivals have held talks about potentially integrating Meta’s generative AI model into Apple Intelligence

In its hustle to catch up on AI, Apple AAPL -1.04%decrease; red down pointing triangle may be turning to a longtime rival: Meta.

Facebook’s parent has held discussions with Apple about integrating Meta Platforms’ META -1.38%decrease; red down pointing triangle generative AI model into Apple Intelligence, the recently announced AI system for iPhones and other devices, according to people familiar with the matter.

Meta and other companies developing generative AI are hoping to take advantage of Apple’s massive distribution through its iPhones—similar to what Apple offers with its App Store on the iPhone.

A latecomer to generative AI, Apple has developed its own smaller artificial-intelligence models but has announced it will turn to partners for more complex or specific tasks. When Apple Intelligence was unveiled earlier this month at the company’s Worldwide Developers Conference, OpenAI’s ChatGPT was announced as the company’s first partner.

“We wanted to start with the best,” said Apple software leader Craig Federighi, noting that ChatGPT “represents the best choice for our users today.” He also said Apple wanted to integrate Google’s Gemini as well.

In addition to Google and Meta, AI startups Anthropic and Perplexity also have been in discussions with Apple to bring their generative AI to Apple Intelligence, said people familiar with the talks.

If Apple strikes deals with partners beyond OpenAI, Apple said customers could choose which external AI models they want to use in addition to Apple’s internal systems.

The discussions with Meta highlight the unlikely alliances that are forming between major technology companies in the artificial-intelligence era. OpenAI’s tech is set to be embedded in Microsoft and Apple devices. And an Apple and Meta deal would be noteworthy given how much the two companies have been at loggerheads over other emerging tech issues.

In its talks with other AI companies, Apple hasn’t sought for either party to pay the other, the people said. Instead, the AI companies can sell premium subscriptions to their services through Apple Intelligence. As it does on its app store, the iPhone maker would keep a cut of subscription revenue from its devices.

The discussions haven’t been finalized and could fall through. Even though deals with Apple would help AI companies obtain massive distribution of their products, it is unclear how much of a financial windfall it would be.

OpenAI will be offering a free version of ChatGPT through Apple Intelligence, but users can also link a premium ChatGPT account to their Apple device.

While ChatGPT usage is expected to double with the Apple partnership, OpenAI’s infrastructure costs are expected to grow 30% to 40%, said Gene Munster, a longtime Apple analyst and managing partner at Deepwater Asset Management. Munster expects 10% to 20% of Apple users will opt into paying for a premium AI subscription to a product like ChatGPT. That could mean billions of dollars for AI companies that integrate successfully with Apple’s new platform.

“Distribution is hard to get,” Munster said. “The beauty of what Apple has built is that you’ve got this engaged distribution at scale.”

A partnership with Meta would help elevate the stature of its efforts in the tech industry’s AI race and represents a rare olive branch between the social-media giant and the iPhone maker. Meta launched Llama 2, its large language model, in July 2023, and in April, the company released the latest versions of its AI models, called Llama 3. While Llama has gained support and adoption within the tech industry and among startups, a deal with Apple would represent a major victory for Chief Executive Mark Zuckerberg and his company’s AI division.

Tensions between the two companies have persisted for more than a decade. Most notably, Apple in 2021 introduced privacy changes to its mobile devices that Meta later said would cost it $10 billion in lost revenue in 2022. In April, Meta published instructions encouraging advertisers to use a workaround to avoid paying a 30% service charge to Apple for “boosted posts,” a form of advertising that the two companies bickered over for years, The Wall Street Journal has reported.

By holding discussions with a range of AI companies, Apple is able to avoid becoming overly reliant on OpenAI. But it remains to be seen how open Apple will make its new AI platform available to these external AI companies. These AI deals take time because for now they have to be struck on a per-company basis, unlike the App Store where an established process exists in which developers can more freely submit their apps for Apple’s approval before showing up in its digital storefront.

Apple’s Federighi said it makes sense for the company to offer numerous AI options because users will prefer different models for different tasks, such as creative writing or researching medical information. “People are going to want to draw on that kind of expertise that might not be part of our core,” he said at the developers conference earlier this month.

News Corp, owner of the Journal and Dow Jones Newswires, has a content-licensing partnership with OpenAI.

The Thales-led radio frequency directed energy weapon is being field tested with the UK military over the summer

A cut-price weapon that can take down multiple drones at once by disrupting their electronics could be available as early as next year, says the head of the company spearheading the development for the UK.

Alex Cresswell, chair and chief executive of Thales UK, said the new radio frequency directed energy weapon (RFDEW) which is being field tested with the UK military over the summer, should be ready for use “quite quickly”.

“Going from something that works in real life on Salisbury Plain to something that you would send off to Ukraine is still quite a jump. It’s a year’s jump but not many years’ jump,” said Cresswell in an interview with the Financial Times.

“Could the system that we have demonstrated be available for someone to field [as early as next year]? Yes, of course it could,” he added.

Thales UK, the British subsidiary of the French defence and technology group, is leading the development of the weapon as part of an industrial consortium under contract with the Ministry of Defence. A decision on when and where to deploy the system would be up to the UK government.

At a cost of only 10p per use and with a range of up to 1km, the system will offer a cheaper alternative to traditional missile air defence systems, which typically cost upwards of hundreds of thousands of dollars. The technology can be mounted on military vehicles and uses a mobile power source to produce radio frequency waves or pulses to interfere with the electronics of a moving target.

The industry, said Cresswell, has been working on countermeasures against incoming attacks for decades. However, since Russia’s invasion of Ukraine both sides have relied heavily on drones to attack from the skies, spurring investment from governments and industry in ways to counter such attacks.

What people are trying to pursue, he added, is weapons that are “much more cost effective for the combat mass that they provide”.

Thales, which has the French government as its biggest investor, generated €18.4bn in revenues in 2023 and is recruiting heavily worldwide. In the UK, where it employs more than 7,000 people, sales have risen 20 per cent over the past two years to just over £1.1bn by the end of 2023.

Cresswell said he expected sales in the UK to increase another 10 per cent this year as the company benefits from higher government orders. It makes missiles and launchers at two sites in Belfast in Northern Ireland, as well as providing sonar systems for the Royal Navy’s nuclear submarines.

Missiles made in Belfast have been supplied, via the UK Ministry of Defence, to Ukraine. Russia’s invasion of Ukraine has not only depleted governments’ weapons stockpiles but also underlined that most were too small to cope with a long and intense conflict.

Output at the Belfast facilities, where Thales builds the Starstreak short-range air defence system and assembles the Saab NLAW anti-tank system, has doubled over the past 18 months to its highest level for the past two decades. Cresswell said Thales plans to double output again over the next two years to meet demand.

There has been a “seismic shift” in the way weapons and munitions are procured, with a “much higher focus on resilience being built in, capacity being built in and the ability to scale up being built in”, he said.

Electric-vehicle makers are setting new standards with unique designs and focus on gadget-packed interiors

As soon as Chinese tech billionaire and Xiaomi founder Lei Jun took the wraps off the world’s first car produced by a smartphone company, automotive enthusiasts knew the source of the design’s inspiration: the Taycan by the 93-year-old German carmaker Porsche.

The Xiaomi SU7, unveiled in December and launched in March, has rocked the world’s biggest car market. Xiaomi had orders for more than 88,000 cars by the end of April. Last month, the company raised its sales target for this year to 120,000 vehicles from 100,000.

Porsche, by comparison, suffered a 24 per cent year-on-year decline in first-quarter sales in China to 16,340 cars.

Xiaomi’s stunning debut has highlighted the rapid advance of China’s electric vehicle industry from bygone perceptions of ugly and low-quality models to sleek, high-tech and affordable cars.

Lei Xing, founder of Chinese consultancy AutoXing, said opinions of local industry leader BYD, which now rivals Tesla for the title of world’s biggest EV producer, started to shift about four years ago with its Han saloon. Also in 2019, local start-up Nio released its ET concept, which later became the group’s flagship luxury model, in another example of Chinese design progress.

“Styling, proportion, sportiness were different from anything BYD had done before,” said Xing. “Likewise for the Nio ET.”

Since then, China’s EV industry has boomed, and the local industry’s design credibility has made huge strides. The International Energy Agency forecasts that 10.1mn EVs will be sold in China this year, compared with 3.4mn in Europe and 1.7mn in the US.

Tu Le, founder of the Sino Auto Insights consultancy, pointed to Human Horizons’ HiPhi X, a luxury SUV launched in 2020 by a now-struggling Shanghai EV maker, as the “first real-life cyberpunk vehicle that was meant to stand out”.

At the other end of the spectrum, the Wuling Hongguang Mini EV, produced since 2020 by a joint venture involving General Motors of the US and two Chinese state-owned carmakers, “started a huge trend” for microcars that can be accessorised.

Yet, some experts said the Xiaomi SU7’s unmistakable resemblance to the Porsche design also put the spotlight on the industry’s long-running struggle to find its own identity.

Xiaomi’s first car “very clearly emulates” the Porsche Taycan, said Robert Dooley, a strategist with UK-based advisory Car Design Research. “From a design perspective, it is a wasted opportunity.”

In many elements of car design, including user experience, technology and interiors, some Chinese brands are “leading” their western rivals, said Dooley, yet many still struggle to highlight “their unique qualities of being Chinese”.

“Although they are more technologically advanced in some cases, they are largely trying to emulate a western brand,” he said. “What are our strengths? What does the market know us for positively? How do we deliver upon those things? . . . To me, that is a big challenge which is not being addressed.”

Companies are now hiring more local staff who better understand Chinese consumers. Xiaomi brought in Li Tianyuan, the first Chinese designer hired by BMW, as head of its car design team in 2021, while Chinese employees comprise 90 per cent of Geely’s Shanghai-based design team.

The rise of the country’s EV industry is also enabling the integration of advanced driver assistance and entertainment systems into car designs at a faster pace than the rest of the world.

“Foreign brands’ infotainment systems might not be as good as Chinese EV makers,” said Guo, a 27-year-old car buyer in Beijing who expressed a preference for spacious interiors and luxurious decor. Her favourite brands, Li Auto and Huawei-backed Aito, are known for their full-size SUV models equipped with huge in-cabin screens and seats with built-in massagers.

Chinese carmakers are increasingly rethinking — and redesigning — interiors around the lifestyles of their local consumers. In many premium models, far greater attention is paid to the layout of the so-called second row, where most business executives sit while they are driven by private chauffeurs.

These efforts follow years of poaching top design talent from the west, including Kris Tomasson, a former Ford and BMW designer who joined Nio in 2015 when it was an ambitious start-up founded by serial entrepreneur William Li.

Tomasson, whose industrial design credits range from the Gulfstream G650 business jet to a Coca-Cola bottle, said Li understood from the beginning that a “strong design DNA” would be critical for the company as it challenged rivals with decades of experience.

“The capabilities have grown here, the talent has grown here, the expertise has grown here. It’s just experience,” he said. “Now they’ve actually gone through the process of designing cars.”

Tomasson added that foreign rivals still underestimated the speed at which Chinese companies could move through the design process, “working almost from the gut” with fewer design iterations.

Stefan Sielaff, who spent 30 years working at European carmakers including Audi, Volkswagen and Bentley, before joining Geely, said the “high demands” of China’s tech-savvy consumers had pushed him to develop increasingly connected and autonomous cars at an unprecedented speed.

“They are very energetic, open to technology and living a fast-paced lifestyle . . . [while] in other parts of the world, people still think a car is [merely] an object which you drive from A to B,” he said.

Zeekr, the Geely brand Sielaff has helped launch, typically takes two years to turn around a new model, shorter than half the development cycles at most of the established European carmakers.

Sielaff attributed the pace to a “low hierarchy” at the company that has helped it respond to recent changes in Chinese consumer tastes, with simplicity and understatement being new watchwords.

“[Western carmakers] have the advantage of a very good name and high value in the eyes of customers,” he said, “but when it comes to reinventing and disrupting themselves, this is also a burden. This is a burden we don’t have.”

State-backed green energy group to ‘pump more capital’ into region after buying Greece’s biggest renewables company

Abu Dhabi’s state-backed green energy group Masdar is on the hunt for more European acquisitions after buying Greece’s biggest renewables company last week, as financial strains in the sector drive down valuations and create room for deals.

Mohamed Jameel Al Ramahi, chief executive, told the Financial Times the deal for Terna Energy at a €3.2bn valuation was just the start of a further expansion into central and eastern Europe.

“The reality is we are not just acquiring this platform and portfolio,” he said. “We are going to be pumping more capital into Greece and into Europe.”

“This is a strategic deal for us where we reinforce our presence in Greece but, more importantly, in eastern Europe,” he added, citing the company’s presence in Serbia, Montenegro and Poland, as well as its “strong pipeline” in the region.

After a decade of rapid growth, the renewables industry has come under pressure from higher interest rates, particularly in Europe where several companies have scaled back or cancelled plans. 

But Al Ramahi said higher interest rates had brought the sector back to reality and made people “come to their senses” over deals.  

“When interest rates were at zero, or negative, people were expecting high valuations. If you didn’t give them the value that they dreamt of, they could go to the bank and borrow at zero interest and continue their growth story. They don’t need you.

“Now [higher rates] triggered a realisation to the market that the valuation they were thinking of is not real.”

In recent months, cash-rich buyers from the US and the Gulf states have stepped up their dealmaking in the capital-intensive sector. 

Masdar, which is funded by the UAE’s sovereign wealth fund Mubadala, its power and water company Taqa and its national oil company Adnoc, has amassed a $30bn portfolio of renewable projects.

As well as Terna, it recently bought 49 per cent of the UK’s £11bn Dogger Bank wind project, a €1.6bn slice of a wind farm in the Baltic Sea and a 50 per cent stake in US wind, solar and energy storage group Terra-Gen.

Meanwhile, Canadian infrastructure investor Brookfield and Singaporean state investment fund Temasek said last month they were in exclusive talks to buy French solar and wind developer Neoen at a €6.1bn valuation, after the company said it needed more capital for growth. 

Connor Teskey, head of renewable power at Brookfield, said at the time the talks were announced that he expected to see more deals. 

“In order to capture all this demand [for renewable electricity], these businesses need to be supported by very well-capitalised, deep-pocketed shareholders. That is in no way a criticism of the shareholders of the past that have built these great businesses and turned them into great platforms but there is simply a different scale that is required for this next chapter of growth.”

Other big deals in the space include KKR’s €2.8bn takeover of Germany-headquartered renewable power producer Encavis, which is expected to close at the end of this year

Masdar has turbocharged its dealmaking in order to meet its target of 100GW of renewable capacity by 2030. It currently has roughly 20GW of projects either up and running, being built or in development.

“We needed to shift gear,” Al Ramahi said. “We needed to start looking at and assessing new opportunities that are large and at scale. We had to start thinking about making big acquisitions.”

Despite growing concerns in many European governments over foreign ownership of critical energy infrastructure, Al Ramahi said Masdar had so far not run into any issues.

“We have not seen that we are not welcomed anywhere,” he said. “On the contrary, all doors have been opened for us everywhere we have gone.”

He added that he was neutral on using Chinese-made solar panels or wind turbines. “We believe in an open liberal market. [We will buy from] anyone who can scale up and supply the product at the right time, at the right price.”