3. Nvidia CORP (NASDAQ:NVDA)
Number Of Hedge Fund Investors: 223
Jerry Sneed from Procyon Partners said in a recent program on Schwab Network that Nvidia CORP (NASDAQ:NVDA) shares were a buy on the latest pullback amid the DeepSeek-triggered selloff. He believes the chip demand will remain strong.
“In 1995, Toy Story was created by Pixar, and it took 200 supercomputers to make that movie. Fast forward to 2023, Elemental, another movie, came out, and it took 151,000 supercomputers to create it. Just because technology gets more efficient doesn’t mean we stop needing high-powered chips. We evolve and push the limits. One of the clusters that helped create that movie in 2023 even caught on fire due to how it was set up. I’ve been trying to explain to my clients that this is complicated, and these chips are necessary. We’re just pushing the limits to the next level. It’s a good thing that DeepSeek came out. Whether or not they ran it more cheaply, they definitely ran it more efficiently, which I think is a positive story for all these companies.”
The market will keep punishing Nvidia for not coming up to its gigantic (and sometimes unrealistic) growth expectations. About 50% of the company’s revenue comes from large cloud providers, which are rethinking their plans amid the DeepSeek launch and looking for low-cost chips. Nvidia’s Q1 guidance shows a 9.4% QoQ revenue growth, down from the previous 12% QoQ growth. Its adjusted margin is expected to be down substantially as well to 71%. The market does not like when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company will report unimpressive growth.
Nvidia is facing challenges at several levels. Competition is one of them. Major competitors like Apple, Qualcomm, and AMD are vying for TSMC’s 3nm capacity, which could limit Nvidia’s access to these chips. Why? Because Nvidia also uses TSMC’s 3nm process nodes. Nvidia is also facing direct competition from other giants that are deciding to make their own chips. Amazon, with its Trainium2 AI chips, offers alternatives. Trainium2 chips could provide cost savings and superior computational power, which could shift AI workloads away from Nvidia’s offerings. Apple is reportedly working with Broadcom to develop an AI server processor. Intel is also trying hard to get back into the game with Jaguar Shores GPU process, set to be produced on its 18A or 14A node.
Mairs & Power Growth Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“We prefer to invest in our backyard, as Minnesota and the Upper Midwest are blessed with a rich and diverse business community. As such, seven out of our 10 largest relative bets are based in our region (MN, WI, IA, SD, ND, IL). That said, we are unafraid to look beyond our geographic area if we find exceptional opportunities. In 2019, we found such an opportunity in a graphics processing technology company called NVIDIA Corporation (NASDAQ:NVDA). At the time, we felt NVIDIA would be a good way to leverage the growing interest in video games, as most of its chips were popular amongst “gamers” to enhance graphics. But what really grabbed our interest was its smaller, albeit faster-growing, data center business that was positioned to benefit from the emergence of high-performance computing, such as deep learning and machine learning, and the related field of AI. The rest, as they say, is history. NVIDIA is one of a number of Technology holdings that we have added over the past decade, which has raised eyebrows since our Firm was well-known for avoiding the Tech Bubble in the late 1990s. Unlike the dot-com companies that operated at the turn-of-the-century, many of today’s technology companies are established businesses with significant cash flows. We have argued, and continue to argue, that many of these investments are perfectly aligned with our investments process in that they embody durable competitive advantages, above-average growth prospects, and excellent management teams.”
