Nvidia stocks dropped over 2% in the early hours of today as investors became increasingly concerned about AI spending. Investors argue that the spending that has been instrumental in the company’s growth could diminish or extend to its competitors.
The decline follows comments from Microsoft and Google that their AI expenditures will expand at a slower pace in the future.
In addition, the latest Blackwell AI servers were rumored to be overheating. This has fueled concerns about additional production delays and led to a further decline in shares.
Moreover, China’s competition regulator announced this week that it is looking into Nvidia’s $7 billion purchase of the networking technology company Mellanox. This made things even more complicated for the company.
The AI chipmaker’s shares are now down approximately 14% from their record-high closing price of $148.88 in early November.
Nvidia stocks in competition
According to reports, the competition is also intensifying. In early December, Amazon announced that it is constructing a supercomputer using its new servers and its own Trainium AI processors.
The company is optimistic that this will serve as a viable alternative to Nvidia. In its most recent earnings report, Broadcom announced that its custom AI chips, known as XPUs, will generate up to $90 billion in revenue over the next three years.
The announcement caused Broadcom’s stock price to significantly increase and Nvidia’s to decline. This is despite analyst predictions that Broadcom’s success would not be at Nvidia’s expense.
In addition, John Vinh, an analyst at KeyBanc Capital Markets, also observed that certain of Nvidia’s most significant clients, including Alphabet, the parent company of Google, and Meta Platforms, the parent company of Facebook, are beginning to develop their own AI processors in-house. This is aimed at diversifying their supply chains in their most critical technology.
Also, there are fears that big tech businesses have yet to see a meaningful return on their AI expenditures, and their AI bills are rising.
In its latest quarterly report, Microsoft’s capital expenditures nearly quadrupled to $20 billion, while Meta’s expenses jumped 36% to $9.2 billion.
Google’s capital spending also rose 63% to $13 billion. According to reports, a recent Gallup poll found that only 4% of US professionals use AI daily. How, then will tech businesses get back their revenues?
JPMorgan analyst Samik Chatterjee said that he expects the major hyperscalers’ AI-related infrastructure spending to climb 57% in 2024, 30% in 2025, and 25% in 2026.
FUD is, therefore, the main reason the AI chipmaker’s market value has declined since its most recent closing high on Nov. 7.
This has resulted in a loss of approximately $400 billion in market value and a drop to third place in the list of the world’s most valuable companies, behind Apple and Microsoft.
Nvidia bulls still expect it to perform well
The majority of Wall Street analysts are optimistic about the stock. They predict that the company’s current quarter topline will increase by billions and by many billions more in the upcoming financial year.
They assert that the surge will be a result of the ongoing ramp of its Blackwell processors. These processors are anticipated to establish a significant market share in the AI-powered chip field.
In the fiscal year that concluded in January 2023, Nvidia reported a net income of $4.37 billion, which encompassed the launch of ChatGPT.
That figure is anticipated to increase to $102 billion by the conclusion of the upcoming fiscal year, which concludes in January 2026.
According to GimmeCredit analyst Dave Novosel, Nvidia is anticipated to generate $62 billion in free cash flow in the upcoming fiscal year. Approximately $36 billion of this amount will be allocated for share buybacks.
In addition, Bernstein analysts, led by Stacy Rasgon, reiterated their assessment of Nvidia as a “top pick” in the sector in a note published Monday, stating that “2025 seems likely to be an exceedingly good year.”
Nvidia’s stock has stayed under pressure even though the company recently reported earnings that were better than expected. Still, Wedbush analyst Dan Ives hopes Nvidia’s market value will hit $4 trillion by 2025.
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