3. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 223
Joshua Brown, the co-founder and CEO of Ritholtz Wealth Management, said in a latest program on CNBC that while he’s long Nvidia Corp (NASDAQ:NVDA), he believes a slowdown in AI chips demand could impact the stock long term. He believes companies have been ordering Nvidia chips with the money they raised from wealth management firms and that chain of investments could break in case demand slows down.
“I’m long. I’m not negative on Nvidia long term. I’m telling you what I think the risk is right now. This is the part people don’t understand. Last summer, a press release went out from Blackstone gloriously announcing this massive infrastructure investment that they were making. And this is where the money comes from. When you hear the breathless reports that CoreWeave has acquired 300,000 GPUs, where the hell do you think they got the money to do that?
They’re getting the money from these huge pots of wealth management capital that’s going into AI infrastructure funds. And Blackstone is not alone. Everybody has one. It’s the hottest product for people in my seat to be selling to their clients. It’s billions and billions of dollars in debt financing so that CoreWeave can buy all this Nvidia product.
That’s great. Here’s the—here’s the rub. If for whatever reason, the demand doesn’t materialize fast enough to please the investors, then all of a sudden there’s less money for the next AI infrastructure fund, and the next one and the next one. And all of a sudden, CoreWeave doesn’t have the capital to buy more GPUs, which is where Nvidia—really at the end of the caboose of that long train I’ve described—that’s where they finally come out and say, turns out we may not have much more demand for the next version after Blackwell, as we thought we did.
Everything’s still great, but it’s a little bit of a dial down. How do you think Wall Street’s going to take that calmly?”
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 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, offer 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.
Harding Loevner Global Developed Markets Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“For the full year, the composite’s underperformance was primarily due to poor stock choices in the US. NVIDIA Corporation (NASDAQ:NVDA), which we sold in the first quarter and repurchased in the fourth quarter, caused almost two-thirds of the strategy’s underperformance. We were hurt by our underweight as NVIDIA’s stock price soared during the first half of the year on the insatiable demand for the company’s graphics processing units (GPUs), which enable generative Al computing.
After ASML’s disappointing outlook led industry valuations to compress, we added a strong company back to the portfolio-NVIDIA.
There were two main reasons we sold NVIDIA last February (after holding the stock for more than five years). First, its biggest customers-data-center behemoths Amazon, Alphabet. Meta Platforms, and Microsoft-have been designing their own custom semiconductor chips, called application-specific integrated circuits (ASICS), that could eventually erode NVIDIA’s dominance. Second, it was unclear to us whether the adoption of Al by large enterprises will be as fast and meaningful as the optimistic views suggested…” (Click here to read the full text)
