Nvidia has lately been in the headlines for all the wrong reasons. They are having trouble shipping Blackwell GPUs, facing regulatory pressure in China, and justifying to the US government how its chips ended up in China’s hands. Amidst all this, its stock has hardly gone anywhere in the last 6 months but is still up 174% this year! We all know that when Nvidia rallies, it rallies like no other stock. So when is the next rally coming?
The question isn’t easy to answer. We believe it is much easier to bet on Nvidia’s long-term prospects rather than trying to predict its next bull run. It could be the next earnings report, or it could be the emergence of an AI-associated technology that requires even more Nvidia GPUs to run.
On the flip side, Big Tech could surprise us by reducing its spending. Others may claim there are enough Nvidia GPUs out there and we don’t need more. When the crypto boom of 2021 arrived, everyone wanted to buy GPUs. This skyrocketing demand resulted in a price surge, with chip companies bringing in record revenues. But as soon as the demand died down, all of a sudden there were enough GPUs in the market and consumers had no need to upgrade.
We could have something similar happen with the GPUs now. At some point, AI demand may die down and the existing hardware enough to satisfy the market. When that happens, a 50% correction can’t be ruled out, just like the one that happened in 2022.
So what’s the long-term play here then? Here’s what we think. Nvidia has already sold a high number of GPUs. With the Blackwell variant, it will continue to sell more in the near future. Then what? We believe it is similar to how Apple moved on from iPhone. iPhone sales were the driver of Apple’s growth for a long time, just like GPU sales are now driving Nvidia’s growth. Apple pivoted to the services segment once it had enough devices in its ecosystem. Nvidia could do something similar to monetize its existing GPUs.
It isn’t too far-fetched to think that Nvidia could venture into the cloud computing business at some point in the future. If Amazon and Google can make their own chips and not buy from Nvidia, Nvidia can build its own cloud so it doesn’t have to rely on cloud service providers to monetize its GPUs. There isn’t any evidence to suggest that this may happen. But if investors are in it for the long run, they won’t be disappointed by Nvidia’s management. After Blackwell, there will be more innovation.
Nvidia is 5th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 193 hedge fund portfolios held NVDA at the end of the third quarter which was 179 in the previous quarter. While we acknowledge the potential of NVDA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
