To The Moon

Nvidia Stock Is in a Correction. Microsoft's CEO May Have Just Said Something Very Worrying

$NVIDIA Corp(NVDA)$  

$Microsoft(MSFT)$  

$Broadcom(AVGO)$  

Dow Jones

08:09

Microsoft has plenty of chips, and now needs more power to fuel them.

That was a comment made by Satya Nadella, Microsoft's $(MSFT)$ chief executive in a recent interview with BG2Pod with Brad Gerstner and Bill Gurley podcast. "Power yes...I am not chip supply constrained," Nadella said.

Microsoft is believed to be one of Nvidia's biggest tech-giant customers. Nvidia reported in a Securities and Exchange Commission filing this summer that sales to a single unnamed customer represented 13% of its total revenue in the fiscal first quarter of 2025, and UBS analyst Timothy Arcuri has said he believes that customer is Microsoft.

Nadella discussed what happened during the initial ChatGPT AI boom of 2022, as they "bought all over the place," to try to catch up and prepare for the demand for those AI services. "And that is a one-time thing and now it's all catching up," he said.

Nvidia stock fell 1.2% on Tuesday after closing in correction territory — defined by many on Wall Street as a 10% or more drop from a most recent high on Monday. Nvidia is off 11.34% from its 52-week closing high of $148.88 reached on Nov. 7, and off 13.66% from a record intraday high of $152.89 seen Nov. 21, according to Dow Jones Market Data. But Nvidia also had a correction bout this summer, and bounced back.

The AI chip maker's shares have closed lower in the last seven of eight sessions, down 4.5% drop for December, though still up 166% year to date.

The Nadella interview was flagged by Doug Kass, founder of hedge fund Seabreeze Partners Management, who told clients in an email note that Microsoft's chip abundance is not good news for Nvidia, on which he has a short.

"Apparently, they all got caught off guard in the beginning; nobody wanted to be left behind; they had the money and piled in with zero caution with no regard to how much they spent, and what they spent it on. These were also big projects, that are now largely completed," said Kass, adding that the additional power Microsoft needs won't be cheap either.

Kass said also there are signs demand is not following some of these projects such as Microsoft's chatbot Copilot, which some analysts have also raised concern about, with regards to how much revenue it would bring in.

"Even if there were significant end demand for what these projects were selling, chip demand would have to taper just due to the math of getting the lump sum of projects first and then just followed by what underlying demand allows for. Without booming end demand for the final product, I am not sure how the supply chain can keep growing to the moon. Especially from the levels it is," said Kass.

Kass said he's written roughly 50 "Tales from Nvidia" columns - all negative - in the past, and has had a short recommendation on the stock since early November.

Where Nvidia enthusiasm may have waned for some, investors have been getting plenty excited about fellow AI chip maker Broadcom $(AVGO)$, whose shares have been soaring in the wake of upbeat earnings and a bullish view on AI demand.

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