But the entertainment industry analogy breaks down on the question of what fans pay. Swift and Ohtani’s acolytes are buying expensive tickets for a few hours of galvanizing fun, while Nvidia’s investors want their money back and more. A close look at the data suggests that long-term investors who buy stocks at recent prices likely won’t get the returns they expect.

The analysis is based on economic profit, also called economic value added (EVA), a fundamental measure that avoids distortions in the accounting that publicly traded companies must use. It focuses on capital, its cost, and how a business uses its capital to generate profits. Research has shown that this method of analysis is more predictive than earnings per share analysis.

An analysis of economic profit carried out Fortune“request for Institutional Shareholder Services” SSI EVA shows that Nvidia is every bit the superstar it appears to be. You don’t have to be a financial geek to understand these numbers: Nvidia’s return on capital over the last four quarters is 140%, while its cost of capital is 9.3%. “Staggering,” says Bennett Stewart, one of the pioneers of economic profit analysis. “It’s hard to imagine how they could get a much higher return on capital than that.”

Here’s how amazingly Nvidia makes money. ISS calculates EVA data for 21,000 publicly traded companies worldwide and reports that Nvidia is in the top 100^th profitability percentile. This does not mean that Nvidia is in the top percentile (which would be 99^th percentile). This means that Nvidia ranks above each of these other 21,000 companies, or possibly tied to some of them.

But these remarkable numbers reflect the past and stock prices are based on the future. Hence the crucial question for investors: what are the chances that Nvidia will perform well enough in the coming years to justify the stock price, recently around $136? EVA can help answer this question.

We asked ISS EVA to calculate how quickly Nvidia would need to grow its economic profit each year for the next 20 years to justify its recent stock price. The answer: 21.4%. Nvidia must increase its economic profit by 21.4% every year for 20 years. If he can’t do that, his recent stock price is too high.

So, can it do that? No one knows for sure, but here are some numbers for context.

· Nvidia’s economic profit over the last four quarters was $46.2 billion. Its economic profit should have reached $2.2 trillion by the 20^th year alone to justify its recent stock price.

· The highest economic profit ever made by a company in 12 months is $202.7 billion, achieved by Saudi Arabian Oil Co. in 2022.

· The highest economic profit ever made by a technology company is $92.8 billion for Apple.

And then there’s a fact based not on math but on real-world experience: When the numbers get really big, increasing them by significant percentages each year becomes difficult, if not impossible.

It’s not just theory. EVA analyzes of this type – showing a massive gap between a company’s stock price and the operational performance needed to achieve it – have proven prescient.

A Fortune analysis in 2023, I discovered that Tesla the stock was overvalued at $210. It fell to $138, but due to the stock’s high volatility, we warned that it could rise above $210, which it did (recently $247). Most Wall Street analysts expect it to fall further from its high of $414.

Fortune in 2021 published an EVA analysis of Amazon’s stock price, showing that it was unreasonably high. Investors who bought at this price regretted it. As of this writing, the stock is right where it was – $186 – when the analysis was published more than three years ago.

Just before the announcement of the famous AOL-Time Warner merger in 2000, Fortune released an EVA analysis showing (correctly) that AOL stock was incredibly overvalued. The title was the currency with which AOL purchased Time Warner, and a follow-up article concluded that the deal must be doomed to failure – as it turned out to be.

Nvidia has no problem. It works spectacularly. But recent buyers of the stock are taking a much bigger risk than they realize. They are betting that Nvidia will continue to perform spectacularly for 20 years. In theory, it is possible. In fact, betting that Taylor Swift and Shohei Ohtani will be at the top of their game in the next 20 years might offer better odds.

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