Whenever something happens that has never happened before, it is difficult to predict what it will ultimately mean for humankind, or even for those directly invovled in the anomalous event. But when trends are part of the picture, and economics, we can make some informed judgments. This week, NVIDIA became the first company ever to reach $5 trillion in market capitalization.
We will not tell you whether it is wise to buy or sell NVIDIA or any other stock. That is not the point of this analysis. Rather, we are interested in what the shockingly high number means for the wider economy, how people are reacting, and whether they are seeing clearly the undercurrents at work.
The first response from many both inside and outside the financial markets is: That just seems wrong. No one should have so much money, and such extreme value based on market speculation is rarely a good sign. Even if NVIDIA can sustain that value over time, that fact could indicate systemic risks the rest of society needs to be taking more seriously.
For reference, the World Bank reports that in 2024 only two nations—the U.S. and China—had total annual economic activity worth $5 trillion or more. After the top 7, no two countries together exchange that much value in one year when you add up all of the transactions across their entire economy. And, the bottom 50% of Americans in terms of income and assets (around 170 million people) hold just over $4 trillion in wealth.
This is not the first, and it will surely not be the last, article to note the detachment between the financial markets and “the real economy” of everyday human experience. That phenomenon is well known and has been extensively documented and analyzed. Where it becomes truly significant, however, is when it appears there is no known way for a company to earn back what investors have poured into it during a speculative rush.
This suggests four basic things must be true, to some extent, about our current economic moment:
- Right or wrong, many investors are worried that not taking this opportunity will rob them of financial gains—so they don’t see major gains coming from elsewhere.
- There is serious concern among investors that no other chip maker is positioned to capitalize so heavily on the AI frenzy—implying that the AI sector is facing an important gap in its supply chain.
- Money is pouring into one basket, because people are hoping that basket can be a safe harbor—evoking the bank run, money hoarding behavior that suggests markets might crash.
- All that money is being pulled out of the wider economy—meaning it is becoming functionally unavailable for investment in small businesses, small start-ups, and what the Constitution calls “the general Welfare”.
All four of these points should raise concerns about the health of the U.S. economy.
- The U.S. government is not as safe a harbor as it was before the haphazard, legally dubious trade war behavior of the current administration.
- Real estate markets that were surging at record levels in the two years before and two years after the onset of the COVID-19 pandemic—especially those facing major climate vulnerabilities—are losing steam.
- A hole is being dug in the middle of the U.S. economy as federal paychecks, supplemental food assistance, and other facets of the everyday economy are defunded.
- Meanwhile, job creation is far slower than promised, partly due to the rapid, unplanned adoption of AI technologies.
There is something else, however, that also deserves serious attention: NVIDIA is the favorite stock for AI investments, at least at the moment, because it produces something real and verifiable, which produces significant added value. Without the hardware NVIDIA makes, the entire AI sector would be advancing much more slowly. And yet, the same speculators that are funding NVIDIA are not committing to invest in other chip makers, like Intel, to help them get to the next level and expand their future horizons.
The NVIDIA goldrush might well be a thinly veiled criticism of the other options for AI investment. Chatbots continue to have problems—making up answers, gaslighting users, harvesting and storing information users believed was safe, and creating headwinds for companies that have to sift through subtle, bizarre, but potentially far-reaching mistakes a team of human professionals would not have made. When economic forces and financial trends are out of line with historical understanding, it makes more sense to invest in physical goods that are known to be needed.
Apple is closing in on $4 trillion in value—also building actual hardware that has proven value. That means just two companies now hold more capital than the combined annual GDP of any two countries outside of the U.S. and China. It now looks increasingly likely that just four companies—Alphabet, Apple, Microsoft, and NVIDIA—will have a combined market capitalization equal to more than half of all economic activity in the United States, across an entire year.
This matters, because wealth concentration at that level means the rest of the economy must feed the profits of those companies, or their value will eventually collapse. Most Americans are not well positioned to play that role, as income inequality continues to get worse, healthcare costs are set to explode, and a range of macrocritical forces are shaving value (and reliable real income) from nearly every sector.
The 20th century response to this kind of perilous overconcentration of wealth and market dominance would be to break up the giant companies, to compel commercial and financial markets to accept more competition. The 21st century context of our moment creates a number of complicating questions, however:
- Are there regulatory bodies that are strong enough, expert enough, and capable of executing such a legally required restructuring, if the time comes?
- Is the overconcentration of wealth among a few companies also indicative of a transfer of wealth out of government, making it harder to enforce compliance?
- Regardless of 1 and 2, what is the effect of worsening polycrisis risk and cost on public budgets and private sector liquidity? (Is climate risk and cost, for instance, draining capital from conventional sources?)
- Have tech companies become so powerful over the last quarter century that breaking them up would create crisis-level ripple effects the economy cannot tolerate?
We know from the 2008 financial crisis that letting influential entities become “too big to fail” is an inherently dangerous course of inaction. If we are in that situation now, as AI is just starting to creep into the everyday economy, in ways we still cannot properly value and forecast, will major investors and regulatory agencies simply wait for a crash and hope that sorts things out?
All of these questions deserve attention when one company accumulates more market value than the GDP of all but two nations. But a more pressing question than NVIDIA itself or its stock value is how we will, as a self-governing society, make sure we are investing in the everyday health, opportunity, and wellbeing of the average person, household, and community. Can such foundational areas of value creation take precedence?
