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Analysts Debate Nvidia’s Long-Term Prospects Amid AI Investment Surge

Quiver Editor

Nvidia’s (NVDA) stock has experienced significant volatility, reigniting the debate about the sustainability of the chipmaker’s rally. The primary concern among investors is the durability of demand for Nvidia’s AI accelerator chips. Over the past year, Nvidia’s customers have been voraciously purchasing these chips, doubling the company’s revenue to $61 billion last fiscal year, with projections for nearly another doubling this period. Bullish investors believe this is just the beginning, as more companies integrate AI to enhance their businesses. However, skeptics worry that if AI doesn’t deliver the anticipated returns, Nvidia’s lofty valuation could face a severe correction.

Investors were recently reminded of this risk when Nvidia’s shares plunged 13% over three days, wiping out $430 billion in market value. Although the stock rebounded, recouping about half of its losses, the incident highlighted the market’s sensitivity to Nvidia’s outlook. Michael Kirkbride of Evercore Wealth Management expressed concerns about AI potentially not living up to its hype, drawing parallels to the 1990s telecom boom and bust. The heavy spending by tech giants like Microsoft (MSFT), Meta (META), Amazon (AMZN), and Alphabet (GOOGL) on Nvidia’s chips underscores the optimism, but analysts like Gil Luria of D.A. Davidson warn that these investments need to yield substantial returns to sustain the rally.

Market Overview:
  • Nvidia shares experience significant volatility, reigniting debate about AI rally sustainability.
  • Nvidia’s revenue doubled last fiscal year, projections for nearly another doubling.
  • Concerns about AI delivering anticipated returns and Nvidia’s high valuation.
Key Points:
  • Nvidia shares plunged 13% in three days, erasing $430 billion in market value.
  • Heavy investments by Microsoft, Meta, Amazon, and Alphabet (GOOG) on Nvidia’s AI chips.
  • Analysts express concerns about long-term returns on AI investments.
Looking Ahead:
  • Monitoring the durability of AI demand and its impact on Nvidia’s valuation.
  • Potential for Nvidia’s stock to continue rallying if AI investments pay off.
  • Ongoing assessment of tech giants’ capital expenditures on AI technology.

Nvidia’s biggest customers, including Microsoft, Meta, Amazon, and Alphabet, have collectively invested over $150 billion in capital expenditures over the past year, with a significant portion going to Nvidia. These companies have pledged to continue their heavy spending on AI technology, which provides a bullish outlook for Nvidia’s stock. However, some analysts remain cautious, pointing out that these investments must generate significant returns to justify continued spending. For instance, Micron Technology’s (MU) disappointing forecast and sluggish demand in traditional markets underscore the uncertainties in the tech sector.

Despite these concerns, many investors remain optimistic about Nvidia’s prospects. Portfolio managers like John Belton of Gabelli Funds believe in Nvidia’s strong fundamental momentum and are not ready to sell. The broader tech market also reflects this optimism, with notable moves from companies like Amazon planning to launch a new online storefront and SoftBank’s Vision Fund investing in AI startups. As the market continues to evolve, Nvidia’s position at the forefront of AI technology will be closely watched.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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