4. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Commenting on Nvidia Corp (NASDAQ:NVDA) results last month, Dan Niles, Niles Investment Management founder and portfolio manager, said that when Nvidia said in its call that the demand would surpass supplies for the next “several quarters,” it set the bar lower for those who “believe the dreams.”
“They just reset the bar lower. Things are going to accelerate as you go into next year, and so, depending, you’re in a really great seasonal time of year for stocks. People just want to believe in the Santa Claus rally.”
Niles then made his case for the expected slowdown and reality check for Nvidia Corp (NASDAQ:NVDA) in the future:
“You’re going to, at some point next year, run into an issue where you’ll need to see a return on investment for the money you’re putting in. Think about Microsoft—they cut estimates after the June quarter report and again after the September quarter report. At their Ignite conference, they even mentioned hitting a wall, potentially with scaling loss.
At some point, there will likely be a pause to digest this. Nvidia revenues, however, could still double over the next several years as there’s a long way to go in building out AI infrastructure. I’m just saying, you’ve got to be honest.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore. The stock fell despite reporting better-than-expected numbers for the latest quarter. However, analysts are sensing a growth slowdown. Nvidia’s Q4 revenue guidance missed the buy-side whisper number of $39 billion, and the company expects gross margins to keep shrinking next quarter. For Q4, non-GAAP gross margin is projected at 73.5%, down from 75% in Q3. NVIDIA Corporation’s (NASDAQ:NVDA) biggest customers, cloud hyperscalers — which account for 50% of its revenue — are increasingly developing in-house AI chips and collaborating with competitors like AMD. This raises concerns about Nvidia’s medium-to-long-term growth in demand and margins.
Columbia Seligman Global Technology Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“The fund held an underweight position in NVIDIA Corporation (NASDAQ:NVDA) relative to the S&P North American Technology Sector, which was a headwind on performance following impressive returns from the company in 2023 and the first two quarters of 2024. NVIDIA’s stock fell during periods of the quarter after the company reported second quarter earnings. While the earnings came in higher than expectations, investors were concerned that the company did not guide earnings high enough, signaling a potential slowdown in AI buildout. NVIDIA’s demand remains strong and the company has forecast orders for upcoming quarters. The question that remains is whether the company can meet the demand for its AI processors and connectivity chips. Our team continues to remain cautious on NVIDIA’s high customer concentration. Microsoft and Meta have driven a significant amount of the company’s revenue, which presents added risk.”
