Over the past two years, the prospects of artificial intelligence (AI) have turn into a bellwether for the technology industry. Amongst an extended list of AI investment opportunities, semiconductor corporations have emerged as a few of the most lucrative.
Since ChatGPT took the world by storm in November 2022, shares of Nvidia (NASDAQ: NVDA) have gained a jaw-dropping 760% as of this writing. In truth, the corporate’s market cap briefly eclipsed $3 trillion.
It really wasn’t too way back that Nvidia was seen as a distinct segment opportunity amongst a broader sea of technology corporations. And yet, today, Nvidia is the third-largest on this planet as measured by market cap, making it more invaluable than Amazon, Alphabet, Meta Platforms, Tesla, and Berkshire Hathaway.
With AI looking like the subsequent generational opportunity for investors, Nvidia may appear probably the most lucrative alternative of all, given its influential role and seemingly unstoppable potential. Nonetheless, a recent remark from Nvidia CEO Jensen Huang has me questioning just how for much longer the stock can soar.
What did Jensen Huang just say?
Last week, investment bank Goldman Sachs hosted the Communacopia + Technology Conference, where analysts were granted rare access to Huang to ask questions related to Nvidia’s product roadmap, customer use cases, and broader industry trends.
Considering Nvidia has consistently blown out Wall Street’s expectations during the last couple of years, you’d think most questions presented to Huang would give attention to the prospects of more record growth. But one analyst actually took a unique approach: The analyst asked Huang what he’s fearful about despite Nvidia’s market-leading position and powerful secular tailwinds fueling its business.
Here was Huang’s response:
Well, our company works with every AI company on this planet today. We’re working with each data center on this planet today. I do not know one data center, one cloud service provider, one computer maker we’re not working with. And so what comes with that’s … [an] enormous responsibility and we now have a lot of individuals on our shoulders and everybody is counting on us and demand is so great that delivery of our components and our technology and our infrastructure and software is absolutely emotional for people, since it directly affects their revenues, it directly affects their competitiveness. And so we probably have more emotional customers today than — and deservedly so. And if we could fulfill everybody’s needs, then the emotion would go away but it’s extremely emotional. It’s really tense. We have got a number of responsibility on our shoulder and we’re attempting to do one of the best we are able to.
I do know that is a jam-packed, run-on sentence. And candidly, there are a number of themes in there that suggest Nvidia is in a superb spot.
But the reason above doesn’t encourage the identical sense of confidence in me that it’d for other investors. As an alternative, it makes me a bit of nervous.
Why does this make me nervous?
Nvidia’s roster of chipsets, called graphics processing units (GPUs), includes its highly touted A100, H100, and latest Blackwell series. Because it stands today, some industry research suggests Nvidia holds 88% of the AI chip market.
Huang really wasn’t exaggerating when he said, “Everybody is counting on us.” Considering the discharge of the Blackwell chips was recently delayed as a consequence of a design flaw, Huang’s remarks about customers being emotional make a number of sense.
It’s these ideas which have me concerned. Nvidia is not any longer just viewed as one other semiconductor stock. Somewhat, the corporate itself is basically seen as a barometer for the health of the general AI market. Given this variation in perception and the pressure to deliver that comes with it, I’m starting to think Nvidia’s stock price motion is increasingly vulnerable.
Said one other way, even when Nvidia delivers a robust quarter of growth, investor expectations have gotten so sky-high that good will not be ok. Whenever you layer on top just how much influence Nvidia has within the chip space, it’s natural to think it’s only a matter of time before even the slightest hiccup could take a cloth toll on the share price.
Has Nvidia stock peaked?
I cannot say with any justifiable certainty whether Nvidia stock is headed higher or not. What I do consider with strong conviction is that shares of Nvidia are unlikely to rise by one other 700%. Even in the long term, I believe such a move is doubtful.
There are already several reasons to be wary of Nvidia’s long-term growth prospects. In the intervening time, nearly half of the corporate’s revenue is concentrated in only 4 customers. Yet, a lot of these customers are spending significant sums to make their very own chips and migrate away from Nvidia.
The mix of rising competition, decelerating revenue and margin trends, and the immense (and unrealistic) expectations that Nvidia will proceed to deliver top-tier products and business ends in perpetuity brings me to the opinion that Nvidia stock could have peaked.
While further gains are probably in store, I believe these might be short-lived. Ultimately, I believe Nvidia stock will normalize ahead of many are anticipating. For that reason, investors should consider all pieces of the puzzle before pouring into the semiconductor darling going forward.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. The Motley Idiot has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Goldman Sachs Group, Meta Platforms, Nvidia, and Tesla. The Motley Idiot has a disclosure policy.
Has Nvidia Stock Peaked? These Words From the CEO May Suggest What’s Next was originally published by The Motley Idiot