Sep. 21, 2023 12:48 PM ET NVIDIA Corporation (NVDA)
- Nvidia Corporation’s strong quarterly results did not lead to a bullish rally in the stock, as most of the future growth has already been priced in.
- Big Tech companies, including Google and Amazon, are increasing their chip development efforts and could pose a challenge to Nvidia’s dominance in the AI chip market.
- Nvidia stock is currently trading at a high valuation compared to its projected revenue in 2030, making it difficult for the stock to outperform in the near term.
The article discusses the current state of Nvidia Corporation (NVDA) and its prospects in the AI chip market. Here’s a summary of the key points:
- Strong Quarterly Results, Limited Stock Impact: Nvidia recently posted impressive quarterly results, but the stock did not experience a bullish rally. This lack of market reaction is attributed to the fact that much of Nvidia’s future growth has already been priced into the stock.
- Competition from Big Tech: Big Tech companies like Google, Amazon, and Tesla are increasing their efforts in chip development, potentially posing a challenge to Nvidia’s dominance in the AI chip market. Google has claimed that its AI chips could outperform Nvidia’s A100 chips, while Amazon and Tesla are exploring their own chip development initiatives.
- Valuation Concerns: Nvidia’s stock is currently trading at a high valuation when compared to its projected revenue in 2030. Even with a projected 40% compound annual growth rate (CAGR), Nvidia’s stock is trading at a P/S ratio that exceeds that of Alphabet (Google’s parent company).
- Correction Phase: The article suggests that Nvidia is entering a correction phase, with multiple headwinds, including increased competition, geopolitical issues, and a high valuation, making it challenging for the stock to outperform the broader market in the near term.
- Increase in Competition: The success of Nvidia and its trillion-dollar market cap has encouraged other Big Tech companies to invest heavily in AI chip development. Alphabet, for example, aims to enter this space with competitive offerings.
- Flexibility and Pricing: Amazon’s rejection of Nvidia’s DGX Cloud platform in favor of building its own servers illustrates a preference for flexibility and potentially lower pricing. This approach may allow companies like Amazon to sell AI services at more competitive rates.
- Impact on Stock Price: Despite strong earnings reports and growth projections, Nvidia’s stock price may not experience significant bullish momentum due to its current high valuation and competitive pressures.
- Investor Takeaway: The article concludes that while Nvidia has reported strong numbers and promising growth projections, its stock may face headwinds in the form of competition from Big Tech and an already high valuation. It suggests that Nvidia’s stock may not outperform the broader tech index in the near term.
In summary, the article raises concerns about Nvidia’s ability to maintain its growth trajectory and valuation given increasing competition and market dynamics. It suggests that investors should carefully consider the stock’s long-term potential in light of these challenges.
