Nvidia Stock: A Rollercoaster Ride in 2024

Prediction: Nvidia Stock Is Going to Soar in Q4 | The Motley Fool

The high-flying AI chip superstar seemed to run out of gas in the fiscal 2025 second-quarter earnings report it released on Aug. 28. While the company beat estimates on the top and bottom lines, the differences were narrower than investors were used to, and guidance was also less impressive than some had hoped. Additionally, the company reported its first sequential decline in gross margin since demand for its graphics processing units (GPUs) surged following the launch of OpenAI's ChatGPT, a sign the chipmaker's profitability has peaked. Since then, Nvidia has continued to pull back, falling Tuesday on a report it was subpoenaed by the Department of Justice as part of an antitrust investigation. The company later said it had not received a subpoena. Nonetheless, as of its close on Sept. 6, the stock was down 18% from where it was trading before the earnings report came out. That sets up a potential buying opportunity for investors as the stock is now about as cheap as it's been (on a valuation basis) since the AI boom began, trading at a price-to-earnings ratio of 49. For investors considering buying the dip on Nvidia, the AI stock is well-positioned to recoup its recent losses in the fourth quarter and move higher. Let's take a look at a few reasons why. The launch of Nvidia's new Blackwell platform has been eagerly awaited since the company announced it in March at its GTC conference. The new GPU ecosystem has been delayed about three months due to a design flaw, but it's expected to be ready to go in the fourth quarter. According to Nvidia, Blackwell is able to run generative AI programs and massive large language models at up to 25 times less cost and energy requirements than the earlier Hopper model. That could be a game-changer for the AI industry in the wide range of companies depending on Nvidia GPUs. CFO Colette Kress told investors on the recent earnings call, "Demand for Blackwell platforms is well above supply, and we expect this to continue into next year." The launch of the platform should support the company's growth and margins, and a successful rollout is likely to lift the stock as well. Investors will be closely watching management's guidance when the company reports its fiscal third-quarter earnings in November for signs of Blackwell's impact. The Fed is expected to cut interest rates at its meeting later this month, and rate cuts are likely to fuel gains for Nvidia and much of the stock market. Lower interest rates will encourage more consumer spending and business investment, and they tend to favor growth stocks like Nvidia as well. There has already been evidence of this as Nvidia stock jumped 4.5% on Aug. 23 after Fed Chair Jerome Powell indicated the time had come for the central bank to begin to cut rates. Assuming rates come down as fast or even faster than expected, Nvidia is likely to benefit. Much of Nvidia's demand comes from cloud infrastructure giants like Microsoft, Alphabet, Meta Platforms, and Amazon, and those companies look set to continue ramping up their purchases of Nvidia's components as they build out their AI capacity. Top tech CEOs like Meta's Mark Zuckerberg and Tesla's Elon Musk have stressed the importance of staying ahead in the AI race as the consequences of falling behind could be much greater than overspending on AI hardware. Additionally, Q4 tends to be a strong quarter in the tech industry, particularly in cloud software and infrastructure, and solid demand there should support further spending on Nvidia's products. After pulling back following its fiscal second-quarter report, Nvidia benefits from lower expectations and a more attractive stock price. If the company executes well on its Blackwell launch, not to mention any boost from the macroeconomic environment, it could be racing back toward its previous highs in the fourth quarter and beyond.

Prediction: Nvidia Stock May Tumble in the Remainder of 2024 | The Motley Fool

Perhaps no stock has risen more so fast than Nvidia (NVDA 1.53%). At one point, it was up by about 1,000% in less than two years, briefly taking its market cap north of $3.2 trillion before it pulled back. However, the run-up in the company's stock was so extreme that even its stellar earnings report for the second quarter of fiscal 2025 (ended July 31) failed to prevent a significant sell-off in its stock. Between the company's likely overvaluation and a momentum shift, investors should probably avoid the semiconductor stock for the remainder of 2024. In light of the recent pullback, investors need to exercise some perspective. The scorching demand for AI chips and Nvidia's considerable lead in this niche of the chip industry arguably make it the premier semiconductor stock. The growth in the AI chip market has been so explosive that Allied Market Research forecasts a compound annual growth rate (CAGR) of 38% through 2032. This is far above the 6% CAGR that Allied forecast for the overall chip industry through 2031. Additionally, Nvidia appears poised to begin shipping its next-generation AI chip Blackwell in the fourth quarter. This should help it maintain its market lead as its competitors struggle to catch up to the chip giant. Considering Nvidia's technical lead, current shareholders should probably stay in the stock because it will likely remain a long-term winner. In time, it may even replace the struggling Intel as a Dow 30 stock. Despite Nvidia's huge potential, the short-term outlook for its stock looks increasingly bleak. Amid several quarters of triple-digit revenue growth, the company eventually fell short of increasingly elevated expectations. Consequently, the stock is down by about 25% from its 52-week high. Admittedly, its gains may have appeared justified from the perspective of its price-to-earnings ratio (P/E). At just 48 times earnings, Nvidia may look undervalued when considering the company's triple-digit percentage revenue and earnings growth. Still, the other metrics may have left investors questioning Nvidia's current price. Its price-to-sales (P/S) ratio had exceeded 40 as recently as July, and the current sales multiple of about 27 makes it expensive by just about any measure. Also, its valuation looks more stratospheric when taking into account its price-to-book value ratio of 43. With AMD and Qualcomm selling at a respective 4 times and 7 times book value, Nvidia may have trouble justifying its huge premium. Moreover, investors tend to sour on stocks with slowing growth, even when the growth rate is robust. This may not be fair, but the fact is that triple-digit growth numbers are unsustainable over the long term. Also, customers are likely to turn to the company's competitors' slower but available AI chips as Nvidia struggles to meet demand. Additionally, investors need to keep the history of Nvidia stock in mind. Despite the gains of more than 20,000% during the past 10 years, the stock has also fallen by more than 50% twice during that period. Such sell-offs tend to occur because the chip industry and its stocks move in cycles. While the upward moves in this stock have handsomely rewarded shareholders, they have also had to endure brutal sell-offs. With Nvidia likely in a bear phase now, investors may want to wait until 2025 before they consider adding shares. Given Nvidia's momentum and its high valuations, investors should probably refrain from adding the company's shares in the last months of 2024. Admittedly, the bull market in AI chips is likely not over, and current shareholders should benefit in the long term by staying in the stock. Nonetheless, both investor expectations and the stock price appear to have become too detached from the fundamentals. Thus, investors should probably wait a few months before adding to positions in Nvidia stock.

After Nvidia's $279 Billion Loss in Market Value, Is the Stock a Buy -- or One to Avoid? | The Motley Fool

We've gotten used to Nvidia (NVDA 1.53%) reaching "firsts" or records -- the company repeatedly has launched the world's fastest artificial intelligence (AI) chip yet and reported its highest quarterly revenue ever. Nvidia's standout moments have been very positive. But in recent days, the situation hasn't been as bright. As the general market tumbled, so did Nvidia. The star AI stock has dropped 12% since the start of the month, and last week in just one day it lost $279 billion in market value. That's the biggest-ever one-day loss in market capitalization for a U.S. company. Though this has left Nvidia significantly cheaper than it was earlier this year -- trading at 36x forward earnings estimates instead of 50x -- you still may be wondering what to do about the stock right now. Has it permanently lost momentum, making it one to avoid, or is Nvidia a buy on the dip? Let's find out. First, let's talk about how Nvidia became such a show-stopping stock, one that most investors have been closely watching. The company initially specialized in making its graphics processing units (GPUs) for the video game industry, but when it became clear these chips could be game-changers in other industries, Nvidia introduced a platform to make that possible. The company released CUDA, a parallel computing platform that brought the GPU into many areas, including AI. Since, Nvidia's data center growth has taken off, resulting in record quarterly revenue that has surpassed the company's annual revenue just a few years ago. Nvidia also is highly profitable and boasts a gross margin of more than 70%. The company forecasts gross margin in the mid-70s for the full year. Of course, Nvidia faces competition from companies such as Advanced Micro Devices and Intel, and these players are producing better and better chips -- and offer them for a lower price. Though these products clearly will gain more and more users, I don't believe this will knock Nvidia out of its top spot. And this is due to Nvidia's innovation strengths. The company offers the best chip around right now -- and it promises to update its chips on an annual basis. This will make it very difficult for another player to get ahead. Nvidia right now is preparing for the launch of a particularly important platform, its new Blackwell architecture and most powerful chip yet. The company plans a ramp of Blackwell in the fourth quarter and is predicting billions of dollars in revenue during that period. Now, let's return to the idea of Nvidia's chips being more expensive than rival products. As mentioned, some customers will turn to those rivals. But Nvidia says that those using its latest GPUs will gain in efficiency and over time this will lower their total cost of ownership. So, by spending more now, customers can save over the long run. This is a point that could prompt certain customers to continue choosing Nvidia. It's also important to keep in mind that Nvidia doesn't sell only chips, but instead offers customers an entire suite of AI products and services -- and these are all available through every public cloud. So, it's very easy for customers to find Nvidia. The one challenge Nvidia faces in the coming months is delivering these products to customers in a timely manner. Demand for Blackwell, for example, is exceeding supply, and Nvidia predicts this will continue. Some potential customers who don't want to wait could turn to other companies for their AI projects. This could weigh on growth and eventually on stock performance. On top of this, any disappointment in Nvidia's earnings reports could hurt investor sentiment since investors have gotten used to ongoing outsized performance from this top AI company. So, considering all of this, and Nvidia's recent lackluster stock performance, is Nvidia a buy or a stock to avoid? For investors looking for a quick gain, Nvidia may not deliver it these days. Uncertainties about the general economic backdrop are weighing on growth companies such as Nvidia -- and this could continue. Also, as mentioned, investors expect a lot of Nvidia -- and if the company doesn't immediately deliver, the stock could suffer. But I consider these near-term problems, and they don't change Nvidia's fantastic long-term story. That's why I see Nvidia's recent dip as a not-to-be-missed opportunity to scoop up shares of this AI giant for a bargain.

2 Reasons to Sell Nvidia Stock (and 1 Reason to Buy) | The Motley Fool

Nvidia's near-term outlook is becoming more uncertain, but it is still a dominant company. With shares down roughly 15% since the company's second-quarter earnings report on Aug. 8, Nvidia's (NVDA 1.53%) legendary bull run might be in trouble. While operational results remain as strong as ever, investors may be growing concerned about the sustainability of Nvidia's business model and the artificial intelligence (AI) industry as a whole. Let's discuss two reasons to consider selling the stock and one reason to buy the dip. Gross profit margin compares a company's revenue to the direct production costs of selling its goods or services before overhead expenses like office salaries, advertising, or research. Typically, this metric favors software-as-a-service (SaaS) companies that don't sell physical products. But with a gross margin of 75%, Nvidia bucks the trend. For context, Microsoft, the biggest SaaS company in the world, has a gross margin of just under 70%, while Alphabet, the parent company of Google and YouTube, stands at 57%. Nvidia is now selling physical hardware at a greater markup than others can sell digital services. And this dynamic doesn't look natural or sustainable over the long term. Generally, free markets tend to compete away excess profitability. And if that doesn't work, governments tend to get involved. This month, Bloomberg News reported that the Department of Justice subpoenaed Nvidia in an "escalating antitrust probe" related to its dominant position in the market for AI processors. The report claims that officials suspect the company may be making it harder for clients to use other suppliers and penalizing them if they do. Nvidia denies the report and claims that its high market share (estimated at 88%) stems from its product's better speed and quality. Either way, Nvidia's business practices (legal or not) may be starting to attract the wrong sort of attention. And investors should take notice. For better or worse, Nvidia has managed to keep competition at bay within the market for AI-capable hardware. That said, the company can't control the consumer-facing software side of the industry, where cracks are beginning to show in the long-term thesis. Meta, which is known for its open-source large language model Llama, is simply trying to stay at the leading edge of the technology. But while this sounds great in theory, it is reminiscent of its failed pivot to the metaverse in 2021 -- a money-burning experiment that was eventually shelved amid shareholder backlash. Shareholders might tolerate companies spending billions on experimental technologies when the economy is buoyant. However, if macroeconomic conditions tighten, managerial teams will be pressured to fall back. Despite all these challenges, Nvidia is not a bad company. The chipmaker produces cutting-edge hardware that could quickly find new use cases, even if generative AI demand fades. The most promising opportunity could be self-driving cars, which analysts at McKinsey think could be worth up to $400 billion in revenue by 2035. Robotics, augmented reality, and even the metaverse could also support demand for Nvidia's hardware for decades to come. At the end of the day, long-term investing is the key to sustainable returns in the stock market because it smooths out the market's volatility and noise -- allowing time for a company's thesis to play out. Nvidia bulls might be willing to overlook some of the chipmaker's near-term challenges in favor of the bigger picture.

Should Nvidia Investors Be Worried About This Statement from Broadcom's CEO? | The Motley Fool

There's no doubt Nvidia (NVDA 3.54%) has been the big winner of the first stage of the AI revolution. In the wake of OpenAI's ChatGPT debut in November 2022, virtually all businesses and cloud giants have clamored for its market-leading GPUs to fuel generative AI. Of course, as the outright leader, Nvidia was able to charge a pretty penny for its chips, as evidenced by its skyrocketing revenue and margins over the past 18 months. But as a reaction, most cloud computing giants have begun investing in their own custom accelerators, which are partially co-designed by ASIC companies Broadcom (AVGO 2.79%) and Marvell Technologies. Could the rise of custom ASICs crowd out demand for Nvidia? In its recent earnings release, Broadcom CEO Hock Tan offered words of caution. Last week, Broadcom released its fiscal third-quarter earnings. Broadcom beat analyst expectations, though its guidance came in a little light. As its name indicates, Broadcom has broad exposure to the chip industry, and many of its non-AI businesses are still mired in a two-year downturn. However, Broadcom's AI businesses across custom ASICs, networking, and optical interconnect are all booming. In terms of custom ASICs, CEO Hock Tan noted on the conference call with analysts that Broadcom's AI ASIC revenue grew 3.5 times over the past year. Despite having this ASIC business, Tan used to say that the "merchant" market, or rather neutral general third-party chipmakers like Nvidia, would eventually win the day in terms of the AI accelerator market, in keeping with the history of semiconductors. But when asked by an analyst last Thursday, Tan noted, "I flipped in my view. And I did that, by the way, last quarter, maybe even six months ago." Tan now says that he believes the cloud giants will increasingly train large language models on their own custom silicon ASICs, due to the cost advantages of making one's own chips, as well as the added advantage of taking some control back from Nvidia. Those GPUs are much more -- or XPUs are much more important. And if that's the case, what better thing to do than bringing the control under the control of your own destiny by creating your own custom silicon accelerators? And that's what I'm seeing all of them do. It's just doing it at different rates and they're starting at different times. But they all have started ... they will all go in that direction totally into ASIC or, as we call it, XPUs, custom silicon. On its call with analysts, Nvidia disclosed that 45% of its revenue currently comes from cloud hyper-scalers, and over 50% came from large internet companies -- likely meaning Meta Platforms -- and other enterprises. When one looks at the 45% of revenue from the cloud operators, and then additional revenue from Meta, which is also ramping its own custom accelerators with Broadcom, that's a good chunk of Nvidia's revenue going to customers who are currently looking for in-house alternatives. Now, Nvidia investors shouldn't panic that all of its cloud demand will go to zero. We still appear to be in the early innings of the AI buildout, and many customers of cloud companies still like to use Nvidia's latest and greatest chips, with their developers familiar with Nvidia's CUDA software. Some cloud vendors have been doing custom ASICs for years, but are still clearly buying lots of Nvidia GPUs as well. Nvidia's new Blackwell chip is set to be released around the end of the year, which will offer a step-change in performance from the current Hopper line. So, there will still be demand for Nvidia chips, even from the cloud vendors. While there will continue to be demand for Nvidia's offerings, Nvidia likely won't retain the 90%-plus of the AI chip market it has garnered to date. It's also possible cloud companies will demand lower prices in the future, with perhaps more bargaining power as they ramp up their custom ASIC offerings and offer them to customers at much lower prices. One reason why Nvidia may have dipped after its recent earnings report is that its gross margins ticked down off their highs, perhaps suggesting limits to the company's pricing power, which seemed limitless throughout 2023 and earlier this year. After this pullback, Nvidia stock trades at 48 times trailing and 36 times forward earnings estimates. So it's not as expensive as it once was and does not have an outlandish valuation for its quality. But it still isn't a "cheap" stock, which makes Nvidia vulnerable to any setback or hang-up. So, any deceleration, whether caused by ASIC competition or some other factor affecting the AI market generally could limit the stock's gains.

Nvidia Stock Investors Just Got a Grim Warning From Apple and Amazon | The Motley Fool

Apple and Amazon just reminded Wall Street that Nvidia is not invincible. Semiconductor company Nvidia (NVDA 3.54%) dominates the market for artificial intelligence (AI) chips. In fact, analysts estimate its graphics processing units account for up to 95% of AI chip sales. But history is full of cautionary tales about the downfall of dominant brands that failed to maintain their technological leadership. IBM was once a highly esteemed computing company due to its mainframes and storage solutions, but it failed to innovate around cloud computing and PCs. Cisco was briefly the most valuable company in the world, back when the internet buildout drove demand for its networking products, but it no longer ranks among the top 50 because it failed to innovate. Earlier this year, Apple announced a set of artificial intelligence (AI) capabilities for iOS and macOS devices called Apple Intelligence. Features include drafting and revising text, generating images, and summarizing notifications, as well as a more capable version of the personal assistant Siri. Apple Intelligence will launch in late October. In July, Apple published a technical paper stating, "Apple Intelligence consists of multiple highly capable generative models that are fast, efficient, specialized for our users' everyday tasks, and can adapt on the fly for their current activity." The paper also detailed how two of those models -- one that runs on devices for simple tasks, and another that runs in private data centers for more sophisticated tasks -- were trained. Importantly, Apple did not use Nvidia graphics processing units (GPUs) to develop its large language models. It used custom silicon called tensor processing units (TPUs) designed by Alphabet's Google and Broadcom. Notably, Broadcom is also helping other companies design custom AI chips, including Meta Platforms, OpenAI, and ByteDance, according to JPMorgan Chase. Here's the bottom line: Apple's decision to use TPUs rather than GPUs to train its AI models is a warning that viable alternatives to Nvidia exist. The relative importance of that decision is yet to be determined. If Apple Intelligence is glitchy, it may turn into a cautionary tale about what happens when companies stray from the industry standard. But if Apple Intelligence is well received by consumers, Apple's decision to use TPUs may inspire other companies to do the same. Alphabet's Google is not the only public cloud to develop custom AI silicon. Amazon Web Services (AWS) has done the same thing. Its custom chips -- Trainium for AI training and Inferentia for AI inference -- are not designed to outshine Nvidia GPUs on performance alone, but rather to give customers a more cost effective alternative. Alphabet and Amazon have deep partnerships with Nvidia. Both companies offer compute instances powered by Nvidia GPUs and that will not change anytime soon. Nvidia GPUs are the gold standard in data center accelerators, so it would be nonsensical to not offer that option. However, both companies have seen fit to develop their own chips on the side. Amazon CEO Andy Jassy recently said: "We've heard loud and clear from customers that they relish better price performance. It's why we've invested in our own custom silicon in Trainium for training and Inferentia for inference. And the second versions of those chips, with Trainium coming later this year, are very compelling on price performance. We are seeing significant demand for these chips." Here's the bottom line: Some companies will gladly pay a premium for Nvidia GPUs, but demand for AWS's custom silicon shows that other companies will gladly use slower chips to save money. In other words, AWS (like Apple) is warning investors that Nvidia will almost certainly lose market share in the future, which could pressure the company's margins as it fights to compete with cheaper alternatives.