From Seekingalpha · Stuart Allsopp · · 40s
Nvidia Investors Ignore Default Risk Surge
Nvidia equity investors overlook rising default risk as credit markets price 21% cumulative default probability.
In brief
Nvidia equity investors overlook rising default risk as credit markets price 21% cumulative default probability. Nvidia's equity price rose 12% despite credit markets indicating a 21% cumulative default risk over 10 years. Originally reported by Seekingalpha.
Credit markets price default risk
Equity markets ignore a sharp rise in Nvidia default risk as reflected by a 10-year CDS implying 21% cumulative default probability.
Share price rises despite risk
NVDA's share price rose 12% while credit markets widened by 80 bps since July.
Required return for equity position
To justify an equity position, NVDA must deliver at least a 6.7% annual return for 30 years.
Here's the gist
Nvidia's equity price rose 12% despite credit markets indicating a 21% cumulative default risk over 10 years.
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