Nvidia has quickly lost about $500 billion in market capitalization over concerns that the GPU maker may have become overvalued or that the AI market powered by its chips is a bubble about to burst.
The California-based company overtook Microsoft last week to become the world’s most valuable company with a market capitalization of $3.335 trillion, shortly after Apple jumped ahead. Now Nvidia is back in third place, having lost about 15 percent of its peak value in just a few days.
According to the Financial Times, this week’s decline followed revelations late last week that rock star CEO Jensen Huang had sold nearly $95 million of the company’s stock just as it became the most valuable company.
This was perhaps taken as a sign that he believed that Nvidia’s share price had peaked and was making a profit, although the trades were obviously part of a previously planned plan, in accordance with regulations.
Huang, along with other Nvidia executives, sold even more of their Nvidia holdings earlier this month, ahead of a planned 10-for-1 split in the company’s stock.
According to Fortune, stock traders indicated that there was no single reason behind the sudden sell-off, only that a rapid rise in a stock’s value can leave it vulnerable to pullbacks as sudden as the one Nvidia just experienced.
Nvidia declined to comment.
Reg readers would be forgiven for drawing comparisons to the dot-com bubble that burst at the turn of the millennium. Network giant Cisco briefly became the most valuable company in the world at the time, but lost about 80 percent of its value the following year when telecom companies cut back on infrastructure.
A similar comparison was made by Bloomberg writer and ex-Reg vulture Ashlee Vance, who asked on Twitter: “If Nvidia goes for the AI boom like Sun Microsystems was for the dotcom boom, what will happen? Like Sun, Nvidia has designed much of its hardware stack to work , from the chip to the network.
Vance went on to say, “Nvidia has a window. The question is simply how long it will take to close.” This could take as little as three years, he speculated, if someone is able to create a chip that drastically outperforms Nvidia in training and/or inference.
“It could also be a 15-year period if it takes a major confluence of technical factors, risks and new thinking to close the gap or change the problem altogether. Take your bets,” he concluded.
As we’ve previously reported, Nvidia’s continued success is tied to the assumption that all these massive investments in AI will pay off somewhere down the road, and some are starting to doubt how long it will take and whether the payoff will actually happen. am worth it.
Investment firm Sequoia Capital estimated that the AI industry spent $50 billion last year on Nvidia chips to train advanced AI models, but so far this has only generated $3 billion in revenue.
Shares of internet giant Meta also tumbled earlier this year after boss Mark Zuckerberg admitted it could take years of investment before the company’s AI business became profitable services.
There is also increasing speculation in the financial media and elsewhere about whether the AI wave represents a bubble.
“The significant outperformance of AI-related stocks over the rest of the market over the past month has once again sparked talk of bubble-like price action,” wrote a columnist on Forbes.
“With nearly a quarter of all venture capital funding flowing to AI startups, I see the signs of some dark days of investing: a meager understanding of the core technology, the startups’ massive cash burn, poorly defined business models and sky-high signs of a bubble,” wrote another columnist on the American political website The Hill.
Some investors, however, don’t seem too concerned. Investment site Fool.com pointed out that Apple continued to grow after becoming its first trillion-dollar company in August 2018, and there’s no reason to suspect Nvidia won’t, the company claims.
“Nvidia still has an estimated market share of over 80 percent [in AI chips] largely thanks to the CUDA software platform. Long before AI became the next big thing, developers learned to program GPUs using Nvidia’s CUDA software, making it the industry standard. This in turn has created a large moat for the company,” it said.
MarketWatch quotes Wall Street analysts as saying they expect Nvidia to post $120 billion in revenue this year, largely double what was seen in 2023.
Assuming the AI market doesn’t turn out to be a bubble that bursts, analysts at market watcher Omdia expect continued demand for Nvidia kits.
“The demand for GPUs will continue, especially for AI training,” said Senior Principal Analyst Manoj Sukumaran. “Custom ASIC development efforts and Nvidia competitors do not have the many features needed to create an optimal training cluster and software stack and it would take a long time for them to catch up… Nvidia will likely take its share of the development continue to expand wallet in data center computing, while maintaining strong revenue growth.”
Speaking about the stock price, Vlad Galabov, head of the Cloud and Data Center Research Practice, said: “I saw that Nvidia recovered a bit after the market. I think investors’ nerves are understandable, as the stock price is ten times higher than in October .2022.” ®