The value of the tech giant at the center of the generative AI boom soared nearly 800% from the start of 2023 to a peak in June, as institutional and retail investors bet that its semiconductor business will remain essential to companies building powerful AI models. The company is now worth about $3 trillion, making it the world’s most valuable company at one point.
But the company’s stock has faced volatile fluctuations since then: In the six weeks since its peak in June, the company lost about $750 billion as big clients like Google and Microsoft signaled that their big capital spending was unlikely to turn a profit anytime soon.
So as investors prepared to hear Nvidia’s second-quarter earnings report after the market closed on Wednesday, they were hoping for some answers about what the future holds for one of the AI industry’s most anticipated companies.
Nvidia’s response suggests it may follow a similar trajectory to Apple’s, and here’s why.
Nvidia’s future looks a lot like Apple’s
The iPhone remains Apple’s largest source of revenue, but growth has slowed in recent years. apple
Investors have been hearing the same story from Nvidia CEO Jensen Huang for some time: The generative AI boom was made possible by the company’s chips, or GPUs, and with the tech industry now all-in on AI, demand for it will continue.
Nvidia’s first-quarter earnings this year reassured investors that this was indeed the case: the company posted quarterly revenue of $26 billion, up an astounding 262% from the same period last year.
But second-quarter earnings don’t look so reassuring: Nvidia shares fell 7% in after-hours trading on Wednesday after the company reported modest quarterly revenue growth of 122% year-over-year to $30 billion.
It’s worth noting that this is a record for Nvidia — the company has never generated as much revenue in a three-month period as it did last quarter — and its outlook for the next quarter suggests it will again set a new record.
But in some ways, Nvidia, like Apple, is a victim of its own success: Every market, be it smartphones or GPUs, has a ceiling.
“Future guidance was also raised, but again, not by as much as in the previous quarter,” Chandler Willison, a research analyst at M Sciences, said in a note late Wednesday. Nvidia “remains a great company with 122% revenue growth, but the bar appears to have been set a bit too high in this quarter’s results.”
Apple is no stranger to slowing growth: After exploding in iPhone sales from 2007 to 2015, growth slowed and has recently contracted, according to Statista data.
The smartphone maker remains one of Silicon Valley’s strongest companies, even as smartphone sales, its biggest source of revenue, have slowed for a number of reasons.
For one thing, the smartphone market has become increasingly saturated since the introduction of the iPhone, and consumers have become reluctant to buy devices that only get incremental improvements every year.
This is a big reason why Apple’s net sales fell to $383.3 billion from $394.3 billion the previous fiscal year.
Optimistic
Nvidia investors may not need to prepare for a revenue decline in the near future, but the slowing growth reported Wednesday suggests the company could follow a similar trajectory to Apple if growth continues to slow in future quarters. For both companies, revenue drivers are moving, but growth is no longer as impressive as it once was.
Capital.com analyst Kyle Rodda told BI that Apple’s peak growth period was nearly 20 years ago. “But continued strong business performance has allowed the company to continue to grow revenue and create shareholder value, although the growth rate has slowed. And the hype and excitement that the market gets when it finds a cool new product has subsided a bit,” he said.
“Given that Nvidia’s chips have the potential to have a similar revolutionary impact as Apple’s products, the company may follow a similar path.”
Kate Lehman, chief market analyst at AvaTrade, told BI that Nvidia’s growth is similar to Apple’s early days of the iPhone. “Like Apple’s annual iPhone releases, Nvidia’s strategy of regular product updates is intended to stabilize demand,” she said. “That said, Nvidia’s future will depend on how well its next-generation GPUs can continue to drive the AI revolution amid competitive pressures and changing market needs.”
Increasing demand
Of course, Huang is optimistic that demand for the next generation of Blackwell GPUs will pick up later this year, setting the stage for Nvidia to release chips annually, much like Apple releases an iPhone every year.
With the generative AI boom expected to sweep the tech industry for years to come, Nvidia shouldn’t see a sudden exodus of buyers, as GPUs will remain a necessary purchase for companies that want to lead in AI.
“At this point, demand for AI GPUs far outstrips NVIDIA’s supply, and we believe the Street should take these results as a very bullish indicator for the tech industry as a whole and react with shock and awe rather than shrug,” Wedbush analysts including Dan Ives wrote in a research note.
Still, Huang’s customers are under pressure to prove to investors that buying Nvidia GPUs will pay off sooner or later. If that proves difficult, demand is expected to slow further.
