2. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Bernstein Research Senior analyst Stacy Rasgon said in a latest program on CNBC that he liked Jensen Huang’s commentary at the GTC event and believes NVIDIA Corporation (NASDAQ:NVDA) will see strong demand for its chips going forward. The analyst answered a question about the future of the stock if a recession hits:
“Clearly, the AI spending is happening. There are business models, cost reductions, revenue models that are starting to get built on this stuff. There’s this whole like long-term trend that he talks about as you move from sort of more traditional computing to accelerated computing, which is a massive cost saver. So, there are other drivers. Again, in a recession, you want to save cost and dial back, and these are investments I think they can pay off. But I mean, if we go into like a significant like global or local recession, I don’t think anything in semis does all that well. At least Nvidia does have some of these structural drivers, and you know, I’ve said this before, but it’s not even expensive. You know, it’s like in the low 20s if the current numbers are low 20s price support earnings if the current numbers are close to being correct. And like there’s a lot of other things out there that are much more expensive that I think are likely to get hit just as bad or worse from a fundamental standpoint in a recessionary environment.”
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 it when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company reports 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, set to be produced on its 18A or 14A node.
Parnassus Growth Equity Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) continued to lead the market for graphics processing units and semiconductor chips needed to power AI applications. Because our position in the stock is an underweight relative to the nearly 12% of the benchmark it now represents, it was a relative detractor for the year.”
