(Kitco News) - After another record high in the S&P 500, propped up by Nvidia's blockbuster earnings, how much more upside is there in the U.S. stock market? David Nelson, Host of The Money Runner podcast and Chief Strategist at Belpointe Asset Management, points to the market's three biggest risks.
Nvidia – the artificial intelligence (AI) chip leader – reached a $2 trillion market cap last week — after a robust earnings report that showed revenue surging 265% year over year to $22.1 billion in its fiscal Q4, beating Wall Street's expectations. Adjusted earnings per share (EPS) also jumped 486% to $5.16.
The positive outlook has fueled bullishness on Wall Street this week, sending Nvidia stock higher — up 65% year-to-date and 242% over the last 12 months.
This meteoric rise means that the chip maker is now not only the third most valuable U.S. company in terms of market capitalization but also has greater value than the economies of countries like South Korea and Australia based on gross domestic product.
What's next for Nvidia?
Nelson, who correctly forecasted the 2023 stock market rally in his previous appearance on Kitco in June, sees more gains ahead for Nvidia based on the company's fundamentals.
"If you exited Apple when it was a trillion dollars because you were scared of just how big it was, you left two trillion on the table," Nelson told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. The same is true about Nvidia. The price momentum is scary, but this is an important company that will be with us for some time."
Nelson explains Nvidia's fundamentals and identifies the biggest mistake investors make during these types of rallies. For insights, watch the video above.
Is the AI rally justified? AI hype vs. dot-com bubble
Nelson agrees with the thesis that the AI revolution is more significant than the introduction of electricity. "I would equate it back to when the electric grid rolled out," he said.
Too many investors compare the current AI rally to the dot-com era and think of Nvidia as just another chip company.
"This is a platform company with an entire ecosystem that goes along with it. These chipsets are 70 pounds. They are massive. And another company coming along with a slightly faster chip will not knock Nvidia off," Nelson noted. "Price momentum is scary, and there'll probably be some pullback. But that should be an opportunity to get involved."
Nelson also explains why these Nvidia chips are better than those of the competitors. For his breakdown, watch the video above.
Watch these three market risks
According to Nelson, the top risks investors need to watch out for are elevated rates, commercial real estate, and weakness in the regional banking sector. All three are interconnected, he added.
The regional banking sector is the one that will get hit at the end of the day because these smaller regional banks hold a lot of commercial loans.
"Those higher rates weigh on the economy, weigh on the consumer. The cost of money is very high right now. That's a drag on the economy. And the mantra from the Fed right now is this hire for longer. And I feel like they won't do anything until the market forces them to act," Nelson added.
For Nelson's outlook on the U.S. economy and whether the soft landing narrative is in danger, watch the video above.
Nelson also does a deep dive into the Magnificent 7's fundamentals and breaks down which sectors he is currently avoiding. For details, watch the video above.
"When you have a $25 trillion economy, there's something out there working, and my job is to find that," he said.
Nelson gives one specific stock pick in the AI ecosystem. For the company's name, watch the video above.
