SAN FRANCISCO, Nov 19 – Jensen Huang, the leader of Nvidia (NVDA.O), expressed that he does not see a bubble in artificial intelligence but instead believes this is a crucial juncture. He thinks that the computing technology his firm specializes in will gradually influence various areas of life, from software engineering to the operation of many robots in everyday tasks, which is enhancing investor optimism and led to a more than 5% increase in Nvidia stock during the starting hours of trading on Thursday.
Nevertheless, a growing segment of skeptics in the market worry that the path following this pivotal moment may only trend downwards.
On Wednesday, the chip industry leader revealed earnings and forecasts that exceeded expectations, which eased immediate worries. Still, there remain persistent fears that Nvidia’s growth could be obstructed by elements beyond the control of the most valuable publicly traded firm ever, which is now assessed at over $4.5 trillion. In a compliance report, Nvidia disclosed that a substantial segment of its successful business hinges on four undisclosed customers.
In the third quarter, these customers contributed 61% of the company’s $57 billion in revenue, up from 56% previously. Past announcements indicate that these clients might consist of Microsoft (MSFT.O), Meta (META.O), and Oracle (ORCL.N). Nvidia also raised its investment in leasing its chips back from cloud service providers to $26 billion, an increase from $12.6 billion in the previous quarter, with contracts extending into at least 2031. Recently, the corporation announced plans to invest as much as $100 billion in OpenAI and $10 billion in Anthropic, two major clients.
The firm’s significant reliance on a limited number of clients and the interlinked nature of some agreements have sparked concerns, particularly since none of these customers have reported any notable profits from AI thus far.
“A large portion of this growth is emerging from unprofitable startups or projects, indicating that this cycle may likely end adversely unless all these companies collectively choose to reduce expenditures and allow profits to materialize, something that seems quite improbable,” noted Chaim Siegel, an analyst with Elazar Advisors.
HUANG REJECTS BUBBLE THEORIES
In a conference call regarding the earnings results, Huang stated that Nvidia envisions a situation that is “completely different” from the current narratives surrounding an AI bubble. He identified three shifts that constitute a vision in which Nvidia could sustain its leadership in the coming years. The first shift is the transition of non-AI software, such as engineering simulations and data analysis, from traditional central processors to Nvidia’s cutting-edge chip technologies.
The second shift entails the development of entirely new software categories, such as programming assistants. Lastly, he predicts AI transitioning from digital interfaces like chatbots to real-world applications in vehicles, robots, and more.
All three crucial factors will significantly influence infrastructure growth in the upcoming years. Huang remarked that Nvidia stands out as the top selection because of its distinctive design that facilitates all three transformations.
Nonetheless, the establishment of all required data centers to realize this vision will necessitate considerable land and energy resources, prompting concerns from even Nvidia proponents such as Ivana Delevska, the chief investment officer at Spear Invest, which engages with the company’s stocks through an actively managed exchange-traded fund.
During the conference call, Huang addressed these concerns, revealing that Nvidia is proactively working to ensure that elements beyond the chip supply chain do not hinder its advancement.
“We have partnered with a variety of stakeholders involved in land acquisition, energy production, and data center development, along with securing funding for these initiatives,” he remarked. “Although none of these endeavors are straightforward, they represent challenges that can be effectively managed and resolved.”
However, as firms like Alphabet, Google’s parent company, and Amazon begin developing their own AI chips to appeal to a similar market, some analysts have voiced skepticism regarding Nvidia’s ability to maintain its leading position in the sector.
“They indicated they are operating at full capacity this year and will likely continue to do so next year, which makes me question any possible positive surprises they may offer,” stated Jay Goldberg, a senior analyst at Seaport Research Partners, which has issued a “sell” rating on Nvidia. “The range of challenges that might negatively affect Nvidia is broader than the potential advantages that could arise.”
