5. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Mark Yusko, Morgan Creek Capital Management CEO & CIO, is recommending investors sell Nvidia Corp (NASDAQ:NVDA) shares. Yusko explained his bear thesis on Nvidia Corp (NASDAQ:NVDA) during a program on CNBC:
“I’m old enough to remember that Intel stock went up 20 fold over 10 years because their chip was going to revolutionize AI in 2000 and today that stock is 63% lower than it was 24 years ago. So you don’t stay on top forever and Nvidia came along and invented GPU and now we got TPUs and VPUs and LPUs. So I think innovation will keep rolling but the thing I’m most worried about with Nvidia, their third largest customer is about to get delisted. That’s a big story.”
Asked how Super Micro delisting could impact Nvidia Corp (NASDAQ:NVDA), the analyst said:
“Well if it’s your third largest customer and they actually haven’t, they don’t have the capacity to continue to be your third largest customer, what happens to your revenue growth and profits growth? I, you know, we’ve seen this movie before with Nell and Cisco back in 2020. So I don’t know, that makes me nervous.”
Simply beating earnings estimates is not enough for Nvidia 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’s 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.
Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
