SAN FRANCISCO, Nov 19 – Jensen Huang, the CEO of Nvidia (NVDA.O), stated that he does not perceive an artificial intelligence bubble, but instead views it as a pivotal moment.
He believes that the type of computing for which his company is known will eventually permeate various aspects of life, from software development to controlling numerous robots in daily activities, which is boosting investor confidence and causing Nvidia shares to rise more than 5% during early trading on Thursday.
However, an increasing number of market doubters fear that the only path following this tipping point leads downward.
On Wednesday, the chip leader released results and projections that surpassed expectations, alleviating immediate concerns. Nonetheless, there are ongoing apprehensions that Nvidia’s expansion could be hindered by factors outside the influence of the most valuable publicly traded company ever, now valued at over $4.5 trillion.
In a regulatory report, Nvidia revealed that a significant portion of its thriving business relies on four unidentified clients.
In the third quarter, 61% of the company’s $57 billion revenue was generated from these clients, an increase from 56% in the previous quarter. Previous announcements suggest that these clients may include Microsoft (MSFT.O), Meta (META.O), and Oracle (ORCL.N).
Nvidia also increased its spending on leasing its own chips back from cloud service clients to $26 billion, rising from $12.6 billion in the second quarter, with contracts extending at least until 2031. Recently, the company indicated it would allocate up to $100 billion towards OpenAI and $10 billion for Anthropic, two key clients.
The company’s heavy dependence on a small number of clients and the interconnected nature of some agreements have raised concerns, especially since none of these clients have reported significant AI profits thus far.
“A considerable amount of this growth is stemming from unprofitable startups or initiatives, suggesting that this cycle will likely conclude unfavorably unless all these businesses collectively decide to curb spending and allow profits to emerge, which is highly unlikely,” remarked Chaim Siegel, an analyst at Elazar Advisors.
HUANG DISMISSES BUBBLE SPECULATIONS
During a conference call about earnings, Huang remarked that Nvidia perceives a scenario that is “entirely distinct” from the prevalent discussions regarding an AI bubble. He outlined three transitions that form a vision where Nvidia could maintain its dominance in the upcoming years. The first transition is moving non-AI software, such as engineering simulations and data analysis, from conventional central processors to Nvidia’s advanced chipsets.
The second transition involves the creation of completely new software categories like coding assistants. Finally, he anticipates AI evolving from virtual platforms like chatbots into tangible applications in vehicles, robots, and beyond.
“Each of these three essential dynamics will play a significant role in infrastructure development in the years ahead. Nvidia is the preferred choice because our unique architecture supports all three transitions,” Huang stated.
However, constructing all the necessary data centers to achieve that vision will demand a vast amount of land and energy, raising concerns even among Nvidia supporters like Ivana Delevska, the chief investment officer at Spear Invest, which invests in the company’s shares through an actively managed exchange-traded fund.
Huang responded to those worries during the conference call, indicating that Nvidia was actively ensuring that aspects outside of the chip supply chain would not impede its progress. “We’ve formed collaborations with numerous stakeholders in land, energy, and data center construction, as well as securing financing for these projects,” he stated. “While none of these tasks are simple, they are manageable and solvable challenges.”
Nevertheless, as firms like Alphabet, the parent company of Google, and Amazon start creating their own AI chips to market to a similar clientele, some analysts expressed doubt about Nvidia’s sustained supremacy in the industry.
“They mentioned they are at full capacity for this year and likely for the next, which makes me question what potential positive surprises they might present,” noted Jay Goldberg, a senior analyst at Seaport Research Partners, which has rated Nvidia as “sell.” “The array of issues that could negatively impact Nvidia is more extensive than the opportunities that could benefit them.”