Quick Bites | The Astonishing Rise of Nvidia

Nvidia has done it again. The chip maker overcame sky-high expectations to beat earnings estimates for a sixth consecutive quarter and further cement its dominance of the AI revolution. Every quarter there are rumblings over whether Nvidia can keep crushing it, and every quarter the company delivers an emphatic answer – yes it can. 

The shares crossed the $1,000 mark last week, now reaching $2.5 trillion in market cap. While it might look like there’s no stopping the stock, particularly as the rally reaches new heights along with expectations, investors considering buying Nvidia stock should ponder some of the future risks.  

Nvidia, the primary beneficiary of the Artificial Intelligence (AI) revolution, has solidly ensconced itself not only as one of the most valuable companies in the world but also as one of the most profitable. Nvidia’s profit margins are the envy of the corporate world – it made $14.9 billion of net income on revenue of $26 billion last quarter. 

Nvidia earned more last quarter than corporate giants like JPMorgan, Berkshire Hathaway or Amazon, all of which rank consistently among America’s most profitable companies. The only American companies to make substantially more money than Nvidia are Apple, Microsoft and Alphabet. 

Source: Axios 

But perhaps the peak is closer than many think. Nvidia CEO Jensen Huang said the Chinese market has become much more competitive. Data centre revenue in China is down significantly, following new US export restrictions introduced in October. 

Secondly, a key strength for the company right now, capital expenditure (capex) spending by other Big Tech names could eventually become a weakness. Microsoft, Amazon, Google and Meta Platforms are among its major customers that are now developing their own chips.  

Trees don’t grow to the sky. Tougher comparisons will catch up with the company, starting with its next earnings. The first quarter of 2023 was the last before growth began to surge. Sales grew 262% year-on-year in the March quarter and the company’s guidance points to a 107% jump in the July quarter. The numbers are astonishing, but the reality is that eventually, growth will slow.