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The Changing Landscape of Business Risk

Published

5 years ago

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The Changing Landscape of Business Risk

The Changing Landscape of Business Risk

View the high resolution version of today’s graphic by clicking here.

In the modern era, the pace of business is fast – but the pace of technological change is even faster.

As a result, the landscape of business risks is constantly shifting and changing, and both entrepreneurs and investors need to be on top of the potential factors that could disrupt their chances of success. At the same time, they also need to be prepared to address and mitigate new risks as they crop up.

Today’s Biggest Risks

Today’s infographic comes to us from Raconteur, and it highlights the forces that have been shaping the business risk landscape – both today and as projected for the future.

Using data from the 2017 Global Risk Management Survey done by insurance company Aon, it shows the top business risks according to 1,843 risk decision-makers from 33 industry sectors in over 60 countries.

Here were the top risks from 2017, as well as the corresponding portion of business leaders that said they were prepared for each risk:

Rank (2017)Business RiskReadiness
#1Damage to reputation/brand51%
#2Economic slowdown/slow recovery30%
#3Increasing competition45%
#4Regulatory/legislative changes44%
#5Cybercrime, hacking, viruses, malicious codes79%
#6Failure to innovate/meet customer needs59%
#7Failure to attract or retain talent57%
#8Business interruption67%
#9Political risk/uncertainties27%
#10Third-party liability70%

The insurer noted that many of these top business risks were uninsurable – and that in general, that such risks are continuing to gain precedence.

Future Business Risk

Interestingly, the survey also asked respondents to predict the risks in 2020 based on current trends and conditions.

Here is the same list, but for 2020, including the current ranks as well:

Rank (2020)Business RiskPrevious Rank (2017)
#1Economic slowdown/slow recovery2
#2Increasing competition3
#3Failure to innovate/meet customer needs6
#4Regulatory/legislative changes4
#5Cybercrime, hacking, viruses, malicious codes5
#6Damage to reputation/brand1
#7Failure to attract or retain talent7
#8Political risk/uncertainties9
#9Commodity price riskn/a
#10Disruptive technologies/innovationn/a

Damage to risk/brand fell out of the top spot all the way to #6, and two new entrants appear for the first time: commodity price risk and disruptive technology/innovation.

Cybercrime Overconfidence

Raconteur’s infographic also points to the biggest long-term risks to business, and the risks that get the most underestimated. These both come from a 2018 report by German asset manager Allianz, which includes opinions from a selection of risk experts.

The Biggest Long Term Risks
1. Cyberincidents
2. New technologies
3. Climate change/increasing volatility of weather

The Most Underestimated Risks
1. Cyberincidents
2. Business interruption
3. New technologies

As you’ll notice, the risk of “cyberincidents” tops both lists.

This is particularly interesting, because in the previous survey of business leaders, the potential business risk of “cybercrime, hacking, viruses, and malicious codes” was the one that leaders said they were most prepared for, with a 79% readiness level.

Yet, cyberincidents – which have an estimated annual impact of $450 billion per year – are both the top long-term risk and the most underestimated risk according to risk experts in the Allianz report.

Could business leaders be overconfident about this kind of threat?

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Technology

Nvidia Joins the Trillion Dollar Club

America’s biggest chipmaker Nvidia has joined the trillion dollar club as advancements in AI move at lightning speed.

Published

4 days ago

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May 30, 2023

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Nvidia Joins the Trillion Dollar Club

Chipmaker Nvidia is now worth nearly as much as Amazon.

America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.

The above graphic compares Nvidia to the seven companies that have reached the trillion dollar club.

Riding the AI Wave

Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.

The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.

Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:

Joined ClubMarket Cap
in trillions		Peak Market Cap
in trillions
AppleAug 2018$2.78$2.94
MicrosoftApr 2019$2.47$2.58
AramcoDec 2019$2.06$2.45
AlphabetJul 2020$1.58$1.98
AmazonApr 2020$1.25$1.88
MetaJun 2021$0.68$1.07
TeslaOct 2021$0.63$1.23
NvidiaMay 2023$1.02$1.02

Note: Market caps as of May 30th, 2023

After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).

As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.

Bull Case Scenario

Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.

Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.

Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.

Bear Case Scenario

While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?

As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.

P/E RatioNet Profit Margin (Annual)
Apple30.225.3%
Microsoft36.136.7%
Aramco13.526.4%
Alphabet28.221.2%
Amazon294.2-0.5%
Meta33.919.9%
Tesla59.015.4%
Nvidia214.416.19%

Consider how this looks for revenue of Nvidia compared to other big tech names:

For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.

Nvidia’s Growth: Will it Last?

This is not the first time Nvidia’s market cap has rocketed up.

During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time.

As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.

By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.

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