MW Nvidia will someday be a distant memory - and that's a good thing, say Nobel laureates

By Mark Hulbert

Long-term economic growth depends on the old stepping aside to make way for the new

Research conducted by the recent Nobel laureates in economics suggests that Nvidia will not remain the largest publicly traded corporation for long.

None of the Nobel Prize winners -Joel Mokyr of Northwestern University, Philippe Aghion of the Collège de France and INSEAD in Paris, and Peter Howitt of Brown University - focused their research on Nvidia (NVDA) specifically. But much of their work has looked at the crucial role played by "creative destruction" in promoting long-term economic growth - and it is that which will inevitably cause Nvidia to someday be little more than a distant memory to stock-market historians.

"Creative destruction" refers to what happens "when a new and better product enters the market, [which causes] the companies selling the older products [to] lose out," to quote from the Nobel Prize committee's press release. "The innovation represents something new and is thus creative. However, it is also destructive, as the company whose technology becomes passé is outcompeted."

Many investors in the losing corporations find this a hard pill to swallow. But a quick walk down memory lane is all that's needed to remind us that, on average, investors are better off because of creative destruction. In the first half of the 19th century, the largest U.S. corporation was the Vermont Central Railroad, but you would be hard pressed to find one investor in a thousand who today has even heard of that company.

But you don't have to go back 200 years to appreciate how much better your portfolio has performed because of creative destruction. Consider a hypothetical portfolio that, each year beginning in 1981, invested in the company that had the largest market cap as of the end of the previous year. If creative destruction were not the powerful force it is, this portfolio would have been an outstanding performer. But it hasn't, as you can see from the accompanying chart. One hundred dollars invested in this portfolio at the beginning of 1981 would today be worth $2,640 - versus $11,729 if that $100 had instead been invested in the S&P 500 SPX.

Over the last five decades this portfolio has owned a series of Nvidias. In the 1980s, IBM $(IBM)$ was at the top of the market-cap rankings, for example; in the 1990s, it was General Electric $(GE)$. Exxon Mobil (XOM) held that ranking in the aughts but, beginning about 10 years ago, Apple $(AAPL)$ rose to the top. Now it's Nvidia's turn.

'Dark clouds'

The Nobel prize winners' research also sheds light on some of the politics involved in creative destruction, to which investors need to pay attention. On the one hand, since no one likes to be on the receiving end of the "destruction" half of creative destruction, the largest corporations and their shareholders will inevitably exert enormous pressure on our politicians for protection. On the other hand, however, as Aghion put it in his remarks after receiving his prize, "anything that gets in the way of openness is an obstruction to growth."

Investors more often than not fail to appreciate Aghion's insight, since the diminution in future economic growth that results from protectionism only manifests itself over the longer term. To the extent investors care only about short-term returns, they therefore think that protecting the largest corporations is a free lunch.

But it isn't free, either for our retirement standard of living or for our children's and grandchildren's. Right now the Nobel laureates are concerned about a "protectionist wave in the U.S."

A looming trade war is only one aspect of this protectionist wave. Another is the growing willingness of the federal government to acquire ownership stakes in various corporations, which will at least partially protect those companies from competition-wrought destruction. Recent examples include Intel $(INTC)$, in which the government recently acquired a 10% stake; MP Materials (MP) (15% stake); Lithium Americas (LAC) (10% stake); Trilogy Metals $(TMQ)$ (10% stake); and U.S. Steel, which earlier this year was acquired by Nippon Steel but in which the government owns a so-called "golden share."

For these and other reasons, Aghion senses "dark clouds" on the horizon, saying the protectionist wave in the U.S. is "not good for world growth and innovation."

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

-Mark Hulbert

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October 21, 2025 10:14 ET (14:14 GMT)

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