To The Moon

Nvidia Corporation undoubtedly had an early lead in the AI chip race, but its rivals are doing their best to challenge its dominance. After more than one failed attempt to discreetly enter the GPU arena, Intel Corporation , the largest producer of PC and server CPUs, might be slow but seems to be playing the long game. Then there’s Advanced Micro Devices who is already promising to challenge Nvidia with its new chips.Intel is also setting itself apart from AMD and Nvidia with competitive pricing. It is also betting bigon becominga leading player in the foundry market by opening chip fabs throughout the U.S., which is a costly moveas Intel does not expectto break even on this front before 2027.But even AMD didn’t provide an impressive earnings report. For the first quarter of 2024, revenue rose only 2% YoY to slightly over $5 billion and while it recorded revenue revenue gains of over 80% in its data center and client segments, client and gaming segments declined 40%.

Nvidia needs to grow by 70% a year to support its stock price. Nvidia's stock is unlikely to produce the return that exuberant investors are expecting.Nvidia shareholders need a reality check. Nvidia's stock price is currently trading on the implicit assumption of faster growth than even the most optimistic Wall Street analyst is projecting. Nvidia's stock is unlikely to produce the return that exuberant investors are expecting.Pointing this out is not a criticism of the company, whose performance has been nothing short of phenomenal. It's a matter of simple math: How fast must Nvidia grow to support its stock price?A helpful analogy is Qualcomm , one of the highest-flying companies of the dot-com era. Its stock rose 26-fold in 1999 alone. Upon focusing only on how much the company's earnings have grown since then, you might conclude that the high stock price at year-end 1999 was justified. Research Affiliates recently pointed out that, since 199