As the year 2024 creeps ever closer, the stock price of NVIDIA, a leading player in the artificial intelligence sector, is experiencing a significant downturnAfter reaching an all-time high of $152.89 on November 21, its value has plummeted approximately 17%. The decline has raised concerns among analysts and investors, particularly as the stock inches closer to entering a bear market territory, typically defined as a drop of 20% from recent highs.
The dramatic fall was exacerbated by comments made by Satya Nadella, the CEO of Microsoft, during a recent interviewNadella hinted at a potential decline in demand for AI chips, suggesting a shift in the supply-demand dynamics that have heavily favored NVIDIA over the past couple of years.
During a B2 podcast featuring Bill Gurley and Brad Gerstner, Nadella shared insights that struck a chord within the tech and investment communities
When pressed on whether Microsoft's construction of AI technology was still facing supply constraints, he stated, "I am limited by power, yes, I am not constrained by chip supply." He further elaborated on the company's outlook for 2024, suggesting optimism in the first half of 2025 while acknowledging ongoing constraints for the current year.
Nadella's remarks conveyed a nuanced picture of the AI chip marketThey implied that, while NVIDIA's chip supply may keep pace with the increasing demand, the fervor seen in the past two years might be subsidingThis mirrors a broader industry narrative where tech firms competed vigorously to build their own large language models, driving an unprecedented demand for NVIDIA's products.
This shift is telling, especially when one considers that NVIDIA had previously operated amidst a frenzied market where its GPUs were in such high demand that the company had to selectively allocate resources to clients clamoring for its chips
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Stories have emerged about billionaire founders begging CEO Jensen Huang for more allocations during lavish dinners—a testament to the overwhelming demand that used to characterize the landscape.
However, with Nadella asserting that supply is now stabilizing, investors may need to reassess their expectationsIt is crucial to differentiate between supply normalization and a decrease in demandNadella's comments may just highlight that NVIDIA's supply chain is catching up with its robust production capabilities, paving the way for a more balanced market.
It is worth noting that analysts on Wall Street have recently commented that NVIDIA's next-generation Blackwell GPUs are expected to face a backlog of new orders extending beyond a year, a sign that the company still holds a foundational position in the AI hardware sector.
Yet, Nadella’s comments have left a cloud hanging over Wall Street’s previously optimistic outlook
Many analysts revel in the notion of product scarcity, but if NVIDIA's major customer believes that the window for such dynamics is closing, it could turn investors wary, especially those hoping for another surge of explosive growth from NVIDIA.
Throughout recent weeks, additional commentary from industry leaders has further influenced NVIDIA's stock trajectoryAlphabet's CEO Sundar Pichai warned earlier this month that major advancements in AI models might start to plateau by 2025, as "the low-hanging fruit has disappeared." This introduces a sobering perspective on the ambitious predictions surrounding AI progress.
In reiterating the challenges ahead, Pichai elaborated how scaling up often leads to significant breakthroughs, stating, "When you start to rapidly scale, you can invest more compute, and you can make a lot of progressBut when we get to the next stage, you definitely need deeper breakthroughs." He remarked that researchers may soon confront walls or barriers—signs of a potential slowdown in innovation.
Furthermore, OpenAI co-founder Ilya Sutskever expressed similar sentiments, indicating that the development of AI could face hurdles as data availability might have peaked, asserting simply, "We have reached a data plateau and won’t surpass it." This reflection adds to the growing skepticism regarding the timeline for achieving the lofty goals set for general artificial intelligence.
Coupled with these concerns, market dynamics are shifting
Recently, Dan Ives from Wedbush suggested that excellent quarterly results from Broadcom may have sparked a pivot within investment circles from NVIDIA to other emerging AI winnersBroadcom, which provides custom AI chips for cloud giants like Amazon and Alphabet, has reported thriving business in this sector, reinforcing the notion that there is a robust interest in AI innovation beyond NVIDIA.
Ives articulated a sentiment rippling through investor discussions: "Many on Wall Street are starting to dabble with the second and third derivatives of the AI revolution, selling some NVIDIA positions in the process." This trend raises questions about whether the euphoria surrounding NVIDIA is beginning to wane amidst strong performances from competitors.
Nonetheless, Ives retained a bullish outlook on NVIDIA, insisting that the recent downturn should be interpreted as a buying opportunity for discerning investors