Can NVDA's Fallin' Stop This Week?
Bloodletting Week.
The week ending Fri, 02 Aug 2024 has been “brutal” for kingpin AI chip maker Nvidia.
On Tue, 30 Jul 2024 it fell a whooping -7%.
On Wed, 31 Jul 2024, post FOMC conference where Fed chair, Mr Powell gave the strongest hint of an interest cut in September 2024, Nvidia rose by +12%, recovering some lost grounds.
On Thu, 01 Aug 2024, on the back of a spike in weekly jobless claims, Nividia again dipped by -7.0%.
Rounding off Fri, 02 Aug 2024, it fell further -1.78%, when US July 2024 jobs reported weaker openings.
In the end, Nvidia total lost for the week amounted to -5.65% or -USD6.51.
Surprise ?
Would you be surprised if I let in that Nvidia’s last week fall was neither “better” or “worse off” than 3 weeks ago.
I had a post on Nvidia stock price fall, 3 weeks ago.
In just one day, (on 11 Jul 2024), it lost -5.57%.
Look Backwards To Look Forward ?
As we head into the second week of August, the question circulating in the media is “when will Nvidia stop falling”?
To answer this question, have to backtrack to when & where it all began.
Almost 2 years ago.
For almost two years, US stock market has been going up with the Dow Jones, S&P 500, and Nasdaq all hit new highs consistently.
Many factors contributed to the market rise, eg. a resilient US economy, strong company earnings.
But this time round, artificial intelligence (AI) is the biggest reason.
Why AI is “appealing” is because (a) it can learn and grow without human help, through machine learning and (b) the “AI” potentials, that it could be used in almost every business.
When new technologies appear, investors often pay a lot for the companies that make them.
For AI, Nvidia is the biggest winner from the boom.
Chip’s Strategy.
Nvidia’s H100 chips became the top choice for AI in early 2023 and they made up almost all of the 3.85 million GPUs shipped for powerful computers in that year.
Nvidia has a near-total control of chips for AI computers.
High demand means they can charge more for H100s and make more profit.
Nvidia keeps making new chips.
The H100 is already the best, but the Blackwell chip comes out later this year.
A newer Rubin chip is planned for 2026.
It appears that Nvidia is determined to stay ahead in AI-accelerated data centers.
Valuation.
Nvidia's value jumped from USD 360 billion to almost USD 3.5 trillion in 2023, on an intra-day basis on 20 Jun 2024, making it the world’s most valuable company for a short time.
But then things changed.
Nvidia’s stock price fell -26% from its peak in June to July, losing about USD 900 billion in value.
Motley Fool thinks that it may be headed much lower. (see below)
Wall Street’s Innovation Penchants.
Over the last 30 years, Wall Street has “embraced” perceived-to-be game-changing innovations, technologies, and trends.
This includes:
- The advent of the internet.
- Genome decoding.
- Business-to-business commerce.
- Housing.
- China stocks.
- Nanotechnology.
- 3D printing.
- Cryptocurrency.
- Blockchain technology.
- Legalized cannabis.
- Augmented & Virtual reality.
- The metaverse.
- (now), Artificial intelligence (AI).
While stocks go up and down, history shows new technology stocks often fall sharply after rising quickly.
Many new things like the internet, and now AI, have been popular.
But after a big rise, prices often fall.
The key factor is all new technologies, trends, and innovations need to time to mature.
A USD 15.7 trillion addressable market probably sounds great on paper, the reality (now) is most businesses lack a game plan for how they will utilize AI to generate additional sales and grow their profits.
One thing that is “constant” for next-big-thing innovations is an overestimation of uptake, adoption, and utility by the investing community, including Wall Street analysts and institutions.
The 13 trends (listed above) endured a bubble-bursting event in its early stages, and there's nothing to suggest that AI won't follow suit.
Investors often think new things will be more popular than they really will be.
Many past tech stocks fell by -90% or more.
For example.
$Meta Platforms, Inc.(META)$ Facebook owner, also had a big fall (over the defunct Metaverse) but it recovered because it has other successful revenue generating businesses.
FYI - Meta generates approximately 98% of its revenue from advertising.
No social sites, draw anywhere close to the number of daily active users (DAUs) that it can.
Nvidia has a similar business strategy.
It has GPU businesses for (a) data centers, (b) gaming, and (c) cryptocurrency miners, along with (d) virtualization software and (e) automotive/robotics solutions.
Therefore, like Meta Platform, it might not fall as much.
But history still points to the fact that Nvidia’s price could fall by -80%.
Why It May Falter.
(1) Stiff competition.
- $Intel(INTC)$ is expected to roll out its Gaudi 3 AI-accelerating chip on a wide-scale basis, in H2 2024.
- $AMD(AMD)$ is ramping up production of its MI300X AI-GPU, that is considerably cheaper than the H100 on a cost basis.
(2) Internal capacity.
Even if Intel's and AMD's chips remain inferior, in terms of compute capabilities, Nvidia's inability to meet overwhelming enterprise demand will open the door for Intel and AMD to fill the void.
(3) Self-sufficiency policy.
- Nvidia's five largest customers by net sales ( $Amazon.com(AMZN)$ , Microsoft, Alphabet (GOOG), Apple Inc(AAPL) and Meta Platform(META) ) are internally developing AI chips for their respective data centers.
- Even though, these “home-made” GPUs may not outperform Nvidia's, they will definitely be cheaper than Nvidia's.
- And they will be taking up valuable data center "real estate" in the coming months, quarters, and years.
Leaving the implication that Nvidia's GPU sales to America's most-influential businesses may have peaked.
(4) Early warnings ?
In its Q1 2024 earnings results, it reported an adjusted gross margin of 78.35%.
For its Q2 2024 earnings, Nvidia has an adjusted gross margin of 75.5% (+/- 50 basis points).
Even though Nvidia's margins have meaningfully expanded over the last 18 months, the first (forecast) sequential decline since 2022 suggests that the AI scarcity responsible for pushing GPU prices higher is about to dwindle.
Are the above early tell-tale signs that Nvidia's market share dominance is set to wane?
Due to real estate constraints, I have not even touched on the strong headwinds the chip maker is now facing:
- Nvidia faces two DOJ antitrust probes - (a) acquisition of Israeli-company Run:ai (a startup specializing in GPU management software) and (b) its anti-competitive business practices.
- Nvidia’s new AI chip (Blackwell) release delayed due to design flaws.
If reader has read up to this point, it is apparent where Nvidia might be heading for this week and next, no?
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Nvda will be alright as it will announce its second-quarter financial results for this current fiscal year (2025) on August 28, 2024, after market close. It made $26 for it's first quarter. The revenue is expected to reach approximately $104-$111.3 billion for the current FY up from $60.9 billion of the previous fiscal year. End of this year I expect the price to oscillate between 150-180 at end of this year.
It looks like the tech sell off got its inspiration from the CEO of Nvidia when he sold three million shares in July. Selling that many shares is pretty much a big signature in the sky saying that is the high for this stock.
That’s reallyy a question now! But I hope it will stop soon of course
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