Nikkei 225 monthly
It’s a shame that Nvidia earnings are overshadowing what happened in Japan today. The Nikkei 225 hit an all-time high, finally break the 1989 peak after an incredible 34-year wait.
Given that it’s come on the same day as Nvidia is likely to make the single-largest market cap gain in history, note the parallels. Throughout the 1990s, Japan was an unstoppable force and money poured into the Nikkei and Japanese real estate.
It was a one-way trade from 7000 in 1983 to 39,000 in 1989 — a 457% increase. Then the bubble burst with a drop as low as 19,000 by late 1990, a 51% drop. There were bounced along the way but the index worked its way down to 7000 in 2009 and barely gained through 2013.
However over the last 10 years, the index has been a solid gainer, climbing 400% in a repeat of the 1980s move. Now both of these moves are something of an illusion for foreign investors. In the 1980s the yen strengthened dramatically to 121 from 260 while in the past decade, the value of the yen has been nearly cut in half.
The message from all of this is that timing is everything and chasing a hot market can have very real consequences. The question that NVDA bulls should be asking is whether this is Japan in 1985 or Japan in 1989. Personally, I don’t think we’re at the point of the insanity of 1989 valuations in Japan but we could very well get there given the enthusiasm for generative AI.
The problem for Nvidia is that they’re not the only company that can design chips. They’re now a $2 trillion company and that puts a big target on their back for anyone who can design the next wave of GPUs. So while it’s clear enough they will be making mountains of money through 2026, those 75% margins are unlikely to last until the end of the decade.