3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Brad Gerstner of Altimeter Capital said in a latest program on CNBC that the demand for AI chips will remain intact in the US despite the DeepSeek breakthrough. He explained why he’s still bullish on NVIDIA Corp (NASDAQ:NVDA).
“Nvidia today I think you just said trades 20 times. Revenue, it’s trading 24 times earnings. Yeah, right, people talk about the bubble, but this isn’t what bubbles are made of. As far as I can tell, the world’s going to have a compute shortage for the next three or four years. I don’t think anything yesterday changed that. In fact, what happened is when you give models like Llama, very inexpensive open source for free, or a DeepSeek, I don’t think there’ll be 400 US companies using an open-source Chinese model that you have to send your corporate data to.
But let’s stipulate that the cost of intelligence is going to come down. That’s a good thing, and the AI consumed is going to go up. I heard yesterday that DeepSeek’s out scrambling to get more GPUs to support the inference because they went to number one on the App Store. Here, NVIDIA Corp (NASDAQ:NVDA) is down 17%, and the company that’s causing it to be down is out there trying to get their hands on more GPUs to support the inference. So, I think there was a lot of hyperventilation yesterday and very few facts.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology. Reportedly, technology giant Apple (AAPL) will be a consumer of Amazon’s new silicon.
Infuse Asset Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“We do still own some NVIDIA Corporation (NASDAQ:NVDA) as the forward multiple isn’t egregious and it powers over 90% of AI workloads. This company is only becoming increasingly important though the hyperscalers are actively trying to save money through their own ASIC programs. The moat CUDA provides has been underestimated time and time again. While I don’t think Nvidia has quite the upside as some of the other companies in the portfolio, it has a product that the best companies in the world literally can’t get enough of.”
