Nvidia's Stock Tumbles Amid Fierce Competition and Market Concerns

Amid a 14% Sell-Off, Nvidia Just Hit Investors With a Rude Awakening. What Should Investors Do? | The Motley Fool

While some of the decline can be attributed to sell-offs in the broader market, Nvidia recently hit investors with some disappointing news. Should investors be bothered by this dilemma, or is this a rare chance to buy the dip in AI's hottest stock? There are a lot of factors influencing Nvidia stock's recent price action. For starters, the unemployment rate unexpectedly rose to 4.3% in July -- its highest level in over two years. Moreover, recent commentary from the Federal Reserve continues to have economists questioning whether or not a cut to interest rates is on the horizon or not. All things considered, the cloudy macroeconomic picture coupled with some typical election-driven volatility has surely caused some investors to start selling stock and hoard cash amid a pool of uncertainty. Unfortunately, this is only one side of the equation for Nvidia investors. Perhaps most concerning of all is that Nvidia's highly anticipated Blackwell graphics processing unit (GPU) is facing delays due to design flaws, according to several media outlets. Considering companies of all sizes and every industry are doubling down on generative AI investments, Nvidia's Blackwell delay doesn't exactly inspire confidence. Nevertheless, I don't think this is necessarily a reason for investors to hit the panic button just yet. While estimates vary, public research suggests that Nvidia owns at least 80% of the AI chip market. So, while a delay to the Blackwell launch may be a lowlight, it's extraordinarily unlikely that Nvidia will lose significant market share as a result of this design blunder. Chief Investment Officer of Harvest Portfolio Management Paul Meeks recently expressed a similar sentiment during an interview on CNBC. He makes a great point in that demand for Nvidia's GPUs is so high that the company will have no real problem selling the Blackwell chips once they actually come to market -- regardless of the delay. Additionally, each of the "Magnificent Seven" companies has reported earnings this season except Nvidia. One of the common threads stitching mega-caps together is that spending on AI-powered products and services has steadily risen over the last year. In particular, capital expenditures (capex) have been on the rise among mega-cap tech as demand for cloud computing infrastructure, data center services, and semiconductor chips increases. Considering that the bulk of Nvidia's revenue growth currently stems from hardware operations in chips and data centers, I think the rising investment in capex among big tech companies represents a compelling secular narrative around Nvidia's bright future. When investors are hit with some distressing news, it's always important to zoom out and consider all the variables. Back in 1997, Apple nearly filed for bankruptcy. Today, Apple is the largest company in the world by market cap. Even the best companies hit road bumps from time to time. What's more important is how management navigates these challenges in the moment. The chart below illustrates Nvidia's price-to-earnings (P/E) ratio and price-to-free cash flow (P/FCF) multiple over the last month. While a 14% drop in Nvidia stock may not seem like a lot in the grand scheme of things, the compression this decline has made on valuation multiples in such a short timeframe shouldn't be overlooked. Outside of its GPUs, the company is quietly building a software platform to complement the core chip business. Additionally, the company has made a number of strategic investments in areas such as robotics to further diversify its AI ecosystem. I don't see any of these initiatives as priced into Nvidia stock at the moment. In fact, I think much of what Nvidia is doing outside of GPUs is not yet fully understood. For these reasons, I think the reaction to the Blackwell delay is overblown and view the recent sell-off as a no-brainer opportunity to buy Nvidia stock right now as further gains look to be in store over the long run.

Should You Buy the Dip in Nvidia Stock? | The Motley Fool

Is this recent pullback a buying opportunity for new investors? With shares down 14% from an all-time high of $136 hit two months ago, Nvidia's (NVDA 4.05%) rocketship rally seems to be unraveling, even as revenue and earnings continue to hit new records. While the chipmaker is still arguably one of the best companies in the world, the market may be losing excitement about the artificial intelligence (AI) industry in general. Let's explore the pros and cons of the current situation to decide whether investors should buy the dip or avoid this declining stock. The truth is that no stock can continue rising at a parabolic rate forever. After gaining over 600% since the start of 2023, Nvidia was due for a pullback. That said, some emerging macroeconomic challenges could eventually spell fundamental trouble for the high-flying company. Analysts at J.P. Morgan think the U.S. economy has a 35% chance of entering a recession by the end of the year. A downturn could wreak havoc on Nvidia's business model, because its high-end AI graphics processing units (GPUs) are essentially tech sector luxury items. For starters, these chips are expensive, with Nvidia's H100 costing between $30,000 and $40,000 per unit. Thousands of these units are needed to train and run large language models (LLMs). The industry is also notoriously difficult to monetize because of high competition, weak competitive moats, and technical limitations. Corporations would most likely slash their investments in this speculative sector during a recession. If Nvidia has anything, it's a spectacular growth rate. First-quarter revenue soared 262% year over year to $26 billion, powered by sales of the company's most advanced data center chips like the H100. Most importantly, these products boast high margins, which allowed Nvidia to increase its operating profit by almost 700% to $16.9 billion. However, a stock's performance is typically based on future expectations, not past performance. It's unclear how Nvidia will manage to top these already breathtaking results, especially without a substantial breakthrough on the consumer-facing software side of the AI industry. The company's remarkably high gross margin of 78.4% also suggests it is selling its products at an unsustainable markup over the cost of producing them. This dynamic is sure to draw attention from suppliers like TSMC, which announced plans to raise its production fees in 2025. And while Nvidia is successfully keeping the competition at bay through its rapid update cycle, there is no guarantee that the company can maintain its deep economic moat forever. With a forward price-to-earnings (P/E) of 40, Nvidia doesn't look expensive compared to its astronomical growth rate. For context, rival chipmaker Advanced Micro Devices trades for the same multiple despite only growing sales by 9% in its most recent quarter (Nvidia grew 262%). That said, Nvidia's business model has become incredibly overexposed to AI hardware demand, making it tied to a very speculative industry that isn't backed by a track record of revenue and profits. Increasingly difficult comps will also make it harder for the company to sustain its current levels of growth over the coming years. All in all, Nvidia stock isn't horrible, and most of the near-term downside might already be priced in. However, I would like to see more progress on the consumer side of the AI industry before buying this dip.

Nvidia Sell-Off: Is It Time to Be Concerned? | The Motley Fool

Consider this: Nvidia's stock has experienced its first 20% drawdown since the start of 2023. In other words, the market finally found a gap in Nvidia's armor. Sure, Nvidia has already bounced off its lows and could recover and make new highs, but is it time to worry that Nvidia's flawless longer-term bull run is coming to an end? Let's dive in and see. Since reaching an all-time high of $140.76 in June, Nvidia shares fell by 27%. That may not seem like all that much. Yet, bear in mind, at its peak, Nvidia boasted a market cap of more than $3.2 trillion -- making it briefly the world's largest public company. During its drawdown, it shed more than $650 billion in value -- roughly equivalent to the total market cap of Tesla, America's 10th-largest company. In other words, Nvidia's recent sell-off is a big deal. And not just because of the value it has lost -- after all, that could be recovered in a similarly short amount of time. No, the bigger concerns are why Nvidia dropped so steeply and whether it could have been the result of fundamental weakness for the company and its stock. Let's see what the numbers say. It's true: Nvidia's stock has skyrocketed over the last few years. So, let's boil down what's behind that success. In my opinion, it comes down to two key factors: To put it another way, Nvidia's stock has skyrocketed because its revenue is way up, and expectations of its future revenue keep increasing, too. So, can that continue? If you look at Nvidia's revenue over the past two years, it's easy to see why its stock has exploded higher. The company has roughly tripled its revenue from $25 billion/year to over $75 billion/year on the back of massive graphics processing unit (GPU) sales -- the "brains" behind artificial intelligence (AI). But that's not the only reason for the stock's success. Along with this massive revenue growth, investors have been willing to pay far more for each dollar in revenue based on increased expectations of future revenue growth. That's why Nvidia's price-to-sales (P/S) ratio has also risen. In 2022, it bottomed under 10 times. However, just a few weeks ago, Nvidia's P/S ratio was an astonishing 42 times. The only way to explain this change is that investors expect Nvidia's sales to grow -- rapidly. Indeed, analysts expect Nvidia to double its sales to nearly $120 billion this year. However, this is where concerns begin to bubble up. What if those same analysts temper their expectations for Nvidia's revenue growth or, even worse, begin to lower those sales estimates? That would call into question the massive valuation premium investors have been paying (as represented by Nvidia's P/S ratio) and, in turn, result in another significant sell-off in the stock. For some answers about whether this is possible, let's examine this chart, which shows how Wall Street analysts have adjusted their revenue estimates over the last three years. This chart shows how much analysts have adjusted their estimates of Nvidia's future revenue (two quarters away) over the last 30 days. Peaks represent large increases (good for the stock); valleys represent decreases (bad for the stock). As you can see, there have been far more peaks than valleys over the last two years. However, those peaks have been decreasing in size. That means that with each quarterly report, analysts have been closer to matching Nvidia's sales guidance. In other words, Wall Street's expectations are starting to catch up to reality. If that trend holds, those factors should reach equilibrium, then perhaps reverse -- company guidance may fall below expectations, and analysts will have to cut their revenue forecasts, resulting in valleys on this chart and a falling share price for Nvidia.

Prediction: Nvidia Is Going to Be Crushed by Competition Over the Next 2 Years -- but Not for the Reason You Might Think | The Motley Fool

An advantage in computing capacity isn't everything when it comes to artificial intelligence (AI)-accelerated data centers. For much of the last 19 months, the bulls have been in control on Wall Street. All three major stock indexes have catapulted to multiple record-closing highs this year, with the rise of artificial intelligence (AI) being the primary catalyst. The excitement surrounding AI has to do with the capacity for software and systems to learn over time without human intervention. This machine-learning ability should allow AI-driven software and systems to become more proficient at their assigned tasks and learn new skills, thus giving the technology utility in most sectors and industries. Although estimates vary wildly for AI, the analysts at PwC released a report last year (Sizing the Prize) claiming the technology could add $15.7 trillion to the global economy via increased production and consumption-side benefits, by 2030. No company has benefited more from the sky-high euphoria surrounding artificial intelligence than semiconductor titan Nvidia (NVDA 1.40%). The reason investors have flocked to Nvidia above all other AI companies is its hardware. Its H100 graphics processing unit (GPU) rapidly became the standard chip used by businesses running generative AI solutions and training large language models (LLMs) in high-compute data centers. Nvidia was responsible for all but 90,000 of the 3.85 million GPUs shipped for use in data centers last year, per TechInsights. What's more, the company's hardware is in such high demand that it and its next-generation chips are backlogged. When demand for a good or service overwhelms supply, it's perfectly normal for the price of said good or service to climb. A substantial increase in the price of Nvidia's H100 GPU has boosted the company's adjusted gross margin by 13.7 percentage points over the last five reported quarters. CEO Jensen Huang has also overseen a major investment in ongoing innovation that should help Nvidia retain its GPU advantages. The company's next-gen Blackwell chip is aimed at accelerating capacity in six areas, including generative AI, while using less energy than its predecessor chip. Meanwhile, the Rubin platform, which will run on the all-new Vera processor, is set for delivery sometime in 2026. These catalysts have helped to lift Nvidia's market cap by $2.4 trillion since the start of 2023, translating into a gain of 695% for investors as of the closing bell on Aug. 13. While things have seemingly been picture-perfect for Nvidia and its shareholders, my prediction is that the going is about to get significantly tougher for Wall Street's AI darling. Every publicly traded company faces headwinds and/or competitive pressures. Despite maintaining a near-monopoly in AI-GPUs for data centers, Nvidia is liable to be crushed by competitive pressures over the coming two years. Some of you might be thinking I have no clue what I'm talking about given the well-defined advantages Nvidia's H100 and upcoming Blackwell chips pack over other key hardware players -- and I don't disagree with you. There's a really good chance Nvidia's willingness to spend aggressively on research will allow the H100, Blackwell, and possibly even Rubin platform to remain at the top of the pack, in terms of computing ability. The problem for Nvidia is that computing capacity represents only one of the factors businesses are considering when building out their AI-accelerated data centers. That capacity is, undeniably, important...but it's not everything. Despite efforts by global chip-fabrication leader Taiwan Semiconductor Manufacturing, its chip-on-wafer-on-substrate (CoWoS) capacity is still insufficient to cover Nvidia's needs. CoWoS is a veritable necessity for packaging the high-bandwidth memory needed in high-capacity data centers. In other words, Nvidia's chips might be faster, but the company can't meet all of its orders or deliver anytime soon. When you're talking about first-mover advantages in generative AI and LLMs, at least some businesses aren't going to wait to fill valuable hardware "real estate" in their data centers. Advanced Micro Devices (AMD 0.81%) has been ramping up production of its MI300X AI-GPU, which has a median price point of around $15,000, compared to the H100, which comes in at around $30,000 per chip. AMD's chip might not have a computing advantage over the H100, but at roughly half the cost and with far less of a backlog, it has AMD sitting pretty. AMD isn't the only external competitor vying for data center real estate. With reports suggesting Nvidia's Blackwell chip will be delayed by at least three months due to design flaws and supplier constraints, tech juggernauts Samsung and Huawei are entering the picture with AI chips of their own. But wait -- there's more. Nvidia's top four customers by net sales, which are all members of the "Magnificent Seven," are developing AI-GPUs for their data centers, too. More than likely, these chips don't have a chance of outperforming the H100 or Blackwell on the basis of computing capacity. But that's not going to stop Microsoft, Meta Platforms, Amazon, and Alphabet from complementing the chips they have purchased from Nvidia with internally designed chips that will ultimately be substantially cheaper and easier to access. Once again, we're talking about Nvidia's hardware losing out on valuable data center real estate. On top of my forecast that Nvidia's stock can be clobbered by competitive pressures over the next two years, the company will also have to contend with three decades of undefeated history when it comes to next-big-thing innovations, technologies, and trends. Over the last 30 years, no shortage of game-changing technologies and trends have graced Wall Street. The advent of the internet, genome decoding, business-to-business commerce, housing, China stocks, nanotechnology, cryptocurrency, 3D printing, blockchain technology, cannabis, augmented/virtual reality, the metaverse, and now AI are just some of these growth-powering trends. With the exception of AI, every other buzzy innovation, technology, or trend in the last 30 years navigated a bubble in its early stages. This early-innings bubble is evidence that investors regularly overestimate how quickly new technologies and trends are going to be adopted at the consumer and/or enterprise level. When lofty targets aren't met and the initial euphoria fades, the bubble eventually bursts. There's nothing to suggest that artificial intelligence is a mature technology. In fact, most businesses lack a clearly defined game plan as to how AI will be used to grow their sales and improve their bottom lines. This is all the evidence we need that euphoria surrounding AI has stepped well past the bounds of reality. If and when the artificial intelligence bubble bursts (which history suggests it will), no stock will be hit harder than Nvidia. Although long-term investors in Nvidia are still going to be up a boatload if Nvidia retraces 50%, 60%, or even 80%, the next two years are shaping up to be challenging for Wall Street's AI darling.

Prediction: This Chip Stock Will Beat Nvidia in the 2nd Half of the Year | The Motley Fool

Nvidia can keep winning, but a competitor could be a new breakout star. There's no question that Nvidia (NVDA 1.40%) has been the flagbearer for the AI boom thus far. Even after the recent pullback, the stock is still up more than 600% since start of 2023, adding trillions in market value along the way. However, past performance is not a guarantee of future returns, and the AI rally is starting to broaden as investors look for alternatives to Nvidia, which may struggle to get back to its peak this year. One chip stock that looks like it has a good chance of outperforming Nvidia over the rest of the year is Advanced Micro Devices (AMD 0.81%), the fabless chip maker best known for its PC CPUs that is now seeing rapid growth from data center GPUs. Let's take a few reasons AMD can beat Nvidia in the second half of the year. AMD's main competition in the PC, or client market, is Intel (INTC 0.87%), the chipmaker that has dominated the PC CPU market since its early days and still has a majority of market share in the segment. Intel just announced its biggest restructuring in years, with plans to lay off at least 15% of its workforce through the end of 2025 as part of a plan to cut $10 billion in costs. The company also reported disappointing second-quarter earnings, issued weak guidance, and eliminated its dividend. In total, the announcement portrayed a company in disarray in spite of CEO Pat Gelsinger's having had three years to mount a turnaround at the legacy chipmaker. Intel stock plunged on the news, and its retrenchment seems to open up an opportunity for rival AMD. The next battleground between the two companies could be the AI PC chip market, and AMD seems likely to have an advantage here. AMD CEO Lisa Su aid that the reviews of its new AI PC products like the Zen 5 platform are "very positive" and was bullish on growth in the PC market heading into 2025, calling it "a good revenue growth opportunity for us." Intel also expressed optimism about its Lunar Lake AI PC chip but acknowledged that it could be a drag on margins because of its outsourced components, meaning it won't be the game-changer that Intel seems to need. AMD also has much more momentum in the client segment at the moment, with second-quarter revenue in that segment jumped 49% to $1.5 billion. Intel, meanwhile, reported just 9% growth in that segment to $7.4 billion. Expect AMD to continue gaining market share from Intel in the massive market. AMD's Mi300 data center GPU is now available, and it's rapidly gaining traction. Data center revenue jumped 115% in the second quarter to $2.8 billion, making up nearly half of the company's revenue in the quarter. Mi300 topped $1 billion in quarterly revenue for the first time, and its customer base is expanding as Microsoft became the first cloud infrastructure to open general availability to the Instinct Mi300X. Instinct is AMD's data center platform, and AMD said that major server makers such as Dell and Super Micro Computer have Instinct platforms in production. Data center revenue tends to be higher margin than other segments, which should drive AMD's profit higher in the coming quarters as the company expects strong data center growth to continue. The company also just acquired Silo AI, Europe's largest private AI lab, which will help strengthen its development of generative AI technologies such as inference and training, as well as large language models. Nvidia recently found a design flaw in its new Blackwell platform that's causing a three-month delay in new chips. There's still a shortage of data center GPUs, and the news could give an opening to AMD to grab more market share. It could also weigh on Nvidia's results over the next few quarters. While Nvidia's leadership in the data center GPU market isn't in jeopardy, as it's much larger than its rivals such as AMD, the Blackwell delay could also weigh on its stock price and cause some reputation damage. It may be the most meaningful setback to Nvidia since the AI rally began. With Nvidia now trading at a market cap of $2.7 trillion and its growth now set to slow, its upside potential seems more limited than AMD's, which could double off its current market cap of $220 billion as data center revenue accelerates and it takes market share from Intel. Recent declines in the gaming and embedded segments should soon bottom out as well lifting overall results. It won't take much to deliver significant bottom-line gains for AMD. If it can top estimates, the stock could soar in the coming months.