Nvidia, the renowned chipmaker, may face a potential plunge in its soaring stock as the boom in generative AI subsides. Despite being a strong company that would have performed well even without the AI hype, there are concerns that the current estimates for Nvidia’s stock value do not factor in the eventual waning of the AI trend.
According to Gil Luria, a senior software analyst at D.A. Davidson, many of Nvidia’s major customers, such as Microsoft, Amazon, Google, and Meta, have been stockpiling its GPU products to support their experiments and projects related to generative AI. While this has been favorable news for Nvidia in the past, Luria argues that it is not sustainable in the long term since these customers will eventually reach their desired capacity and no longer need to continually purchase Nvidia’s products.
Luria predicts that Nvidia’s revenue will decline within the next four to six quarters, leading to a decrease in the stock’s performance. He suggests that the current highs of Nvidia’s stock are not reflective of its future prospects and that the stock is overvalued. Although he acknowledges that his prediction may be premature, he believes that the decline in revenue will eventually impact the stock’s value.
As of now, Nvidia shares have been trading at a 3.26% increase, reaching a value of US$539.44. This marks a significant rise of approximately 245% from the previous year. Nvidia experienced a boost in its market capitalization in May 2023, becoming the first chipmaker to reach a valuation of US$1 trillion.
Last August, an analyst expressed the belief that Nvidia’s stock was a must-own and predicted that it would reach a value of US$800. However, considering Luria’s perspective, it seems that the stock’s current rally may not be sustainable in the long run.
In conclusion, while Nvidia has undoubtedly benefited from the excitement around generative AI, potential concerns about the future sustainability of its stock value have been raised. Analyst Gil Luria suggests that as customers reach their desired capacity for GPU products, Nvidia’s revenue may decline, impacting the stock’s performance. This poses a cautionary note for investors who should carefully evaluate the long-term prospects of Nvidia’s stock amidst the changing landscape of generative AI.
