Nvidia's 5 RED Flags - Warnings ! Read to Know.
All About Nvidia.
For this post, I am not going extoll all the positives about $NVIDIA Corp(NVDA)$.
This is because I have devoted sufficient real-estate posts on Nvidia’s pluses.
You could click here ! , here ! and here ! to read about them.
Instead, I would like to share the possibilities on why Nvidia has been consolidating of late; after its forward stock split on 10 Jun 2024.
Based on its latest share price, Nvidia has a market cap of $3.017 trillion; making it the 3rd highest after Microsoft and Apple Inc.
Even though Nvidia is already worth >$3 trillion, it could still have plenty of room to run.
Before investors buy this high-flying stock, they should pay attention to these 4 Red flags that could unexpectedly end its historic rally.
1. All-in play on AI chips
In the past (approx. 2 years ago), Nvidia generated most of its revenue from gaming GPUs for video games (46%) and data centers GPUs (39%). The rest came from other areas like design and cars.
In the 2 years since, things have changed massively! Now, most of Nvidia's revenue comes from data center chips (87%) used for artificial intelligence (AI); while Video gaming GPUs make up 10% of revenue.
This big shift makes Nvidia more focused on AI and that could be a risk in itself.
Should the AI market slows down, Nvidia might have too many chips and not enough buyers. Also, their other businesses (like gaming) aren't big enough to make up for any losses in AI sales.
2. Faces unpredictable regulatory challenges
Nvidia relies heavily on the AI market, can become risky due to unpredictable regulatory challenges.
US regulators have made it harder for Nvidia to sell AI chips to China.
That could, in turn, pushed China to accelerate development of their own AI chips.
Complaints about mass plagiarism and other ethical issues could also force AI companies to expand at a slower and more measured pace., reducing demand for Nvidia's chips.
3. Competitive Threats
Nvidia dominates the market for powerful graphics cards GPUs (88%), but rivals / competitors are catching up.
$Advanced Micro Devices(AMD)$ offers cheaper AI chips that outperform Nvidia's expensive ones in some tests.
$Intel(INTC)$ - another competitor, also claims its new Gaudi 3 AI accelerators are faster and more efficient AI accelerators.
$SUPER MICRO COMPUTER INC(SMCI)$ that build servers powered by Nvidia chips (eg. ) are now making new versions of servers tailored for AMD and Intel options.
These lower-cost servers could be attractive to budget-minded data centers, eroding Nvidia's market share and dominance, in the process.
Big companies like Google and Amazon are even creating their own AI chips. While this won't immediately hurt Nvidia, it could slowly weaken their strong hold on the market in the long run.
4. Insiders, Net Sellers - meaning?
Nvidia's stock is “expensive”, because:
It is 49x forward earnings.
26x this year's sales.
It could remain a “good buy” if the company grows much more (double or triple) in the near term.
However over the past 12 months, company insiders are selling more shares than they are buying.
This is especially so, in the past 3 months, where insiders have sold more than 52x as many shares as they bought.
which suggests that they do not believe the stock will grow much in the near future.
Although insider sales do not necessarily mean it stock is headed off a cliff, it is nevertheless a worrisome trend that suggests its near-term upside is limited.
(5) Start of Antitrust Charge/s?
France is considering suing Nvidia over concerns about fair competition in creating powerful AI tools.
They worry that Nvidia might have too much control because their special chip software (CUDA) is the only one that works perfectly with the powerful graphics chips everyone uses for AI.
France is also suspicious of Nvidia's recent investments in AI-focused cloud service providers such as CoreWeave.
Separately, it seems like US Department of Justice (DOJ) is taking the lead in investigating Nvidia as it divvies up Big Tech scrutiny with the Federal Trade Commission, a source familiar with the matter has told Reuters.
Will this be the only antitrust investigation or just the beginning of many? Only need to look antitrust persecutions of other Magnificant Seven eg. $Microsoft(MSFT)$, Google and Meta Platform…
Believe Nvidia is still a good buy IF it could overcome the (a) competitive, (b) regulatory and (c) macro challenges. It’s still a little “overpriced” at the current moment.
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Do you think the 4 Red flags mentioned are valid reasons?
Do you think further down the road (in a year’s time), Nvidia will “give up” some of its dominance, whether it likes it or not; just like Tesla?
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Biggest red flag is it was rising too much and too fast
There’s still room for NVDA to rise I believe
But looks like it’s back to bullish again
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