Nvidia shares have soared nearly 800% over the past two years, but can the company sustain its growth?
Over the past two years, the prospect of artificial intelligence (AI) has been at the forefront of the technology industry, and among a long list of AI investment opportunities, semiconductor companies have emerged as the most profitable.
Since ChatGPT took the world by storm in November 2022, Nvidia’s stock price (NVDA -1.92%) At the time of writing, the company’s stock price has risen by a staggering 760%. In fact, the company’s market capitalization briefly exceeded $3 trillion.
It wasn’t that long ago that Nvidia was considered a niche opportunity in a vast sea of technology companies, but today it’s the third-largest company in the world by market cap, and more valuable than Amazon, Alphabet, Meta Platforms, Tesla, and Berkshire Hathaway.
With AI looking like the next generation of opportunity for investors, Nvidia might seem like the most attractive option given its impact and potential to be unstoppable. But recent comments from Nvidia CEO Jensen Huang make us wonder how much further the company’s stock can soar.
What did Jensen Huang just say?
Last week, investment bank Goldman Sachs hosted its Communacopia + Technology Conference, where analysts had a rare opportunity to meet Huang and ask him questions about Nvidia’s product roadmap, customer use cases and overall industry trends.
Given that Nvidia has consistently beaten Wall Street expectations over the past few years, you’d think most of the questions posed to Huang would focus on the prospects for further record growth. But one analyst actually took a different approach: He asked Huang what he was worried about, given Nvidia’s market-leading position and the strong secular tailwinds propelling its business.
Huang’s response is as follows:
Well, we are currently partnering with various AI companies around the world. There is currently no data center in the world. There is no data center, no cloud service provider, no computer. It’s a manufacturer that we don’t work with. It’s a big responsibility that comes with that. With so many people on our shoulders, everyone counting on us, and the demand so great, Our parts, technology, infrastructure, and software are very emotionally sensitive because it directly affects our bottom line and it affects our competitiveness. So we probably have more emotional customers than we had before. It’s natural. If we could meet the needs of all our customers, the emotions would go away, but the emotions are very emotional. It’s very stressful. We have a big responsibility on our shoulders and we’re trying to do our best.
I know this is a packed, long read, and frankly, there are a lot of themes in there that suggest Nvidia is doing well.
However, the above explanation doesn’t inspire me as much confidence as other investors. In fact, it makes me a little uneasy.
Why does this make me anxious?
Nvidia’s chipsets are called graphics processing units (GPUs) and include the highly acclaimed A100, H100, and the new Blackwell series. Currently, Nvidia holds 88% of the AI chip market, according to industry research.
Huang said,“Everybody is counting on us,” he said.Hwang’s comments that customers are emotional are understandable, given that the launch of Blackwell’s chips was recently delayed because of design flaws.
It’s this mindset that worries me. Nvidia is no longer viewed solely as a semiconductor stock. Instead, the company itself is widely seen as a barometer for the health of the overall AI market. Given this shift in perception and the associated pressure to deliver, I’m beginning to believe Nvidia’s stock price volatility is becoming more volatile.
In other words, even if Nvidia delivers strong quarterly growth, good may not be good enough because investor expectations will be so high. And given how much influence Nvidia has over the chip industry, it’s natural to think it’s just a matter of time before even the slightest problem deals a significant blow to the stock price.
Image source: Getty Images.
Has Nvidia Stock Peaked?
I can’t say with any reasonable degree of certainty whether Nvidia’s stock price will rise. What I am very certain of is that it is unlikely that Nvidia’s stock price will rise another 700%. Even in the long term, I doubt such a move will happen.
There are already reasons to be cautious about Nvidia’s long-term growth prospects. Nearly half of the company’s revenue is now concentrated in just four customers. But many of those customers are spending too much money to make their own chips and are shifting away from Nvidia.
A combination of increasing competition, slowing revenue and margin trends, and high (and unrealistic) expectations that Nvidia will continue to deliver top-tier products and performance in perpetuity have led some to believe that Nvidia’s stock price may have peaked.
While there is probably more upside to come, I believe it will be short-lived. Ultimately, I think Nvidia’s stock price will normalize sooner than many expect, so investors need to consider all the pieces of the puzzle before investing in this semiconductor darling going forward.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has invested in Alphabet, Amazon, Meta Platforms, NVIDIA, and Tesla. The Motley Fool has invested in and recommends Alphabet, Amazon, Berkshire Hathaway, Goldman Sachs Group, Meta Platforms, NVIDIA, and Tesla. The Motley Fool has a disclosure policy.
