Nvidia: Wall Street star or giant with feet of clay?

It moves with the instability of a start-upbut it is the size of a technological empire. Nvidia has introduced an injection of volatility into the market rarely seen in a company of its size: eight of the ten largest falls in market capitalisation in a single day in history bear its name – all this year. The latest, this Tuesday, caused some 252.4 billion euros to evaporate in a matter of hours, an amount greater than the sum of the value of Inditex, Banco Santander and Telefónica, after a fall of 9.5% in their shares.

In another company, this decline would be synonymous with extreme concern, if not a death certificate. But Nvidia, which until Tuesday was the second largest company on the planet only behind Apple – Microsoft surpassed it with the crash – has always been able to recover after each setback. Few doubt that it remains a success story: its microprocessors for artificial intelligence are selling more than ever thanks to an overwhelming market dominance, based on its technological supremacy and the enormous expectations placed on AI; it has never made so much money: 16.599 billion dollars in the second quarter, 168% more, or what is the same, a whopping 184 million daily profit; and despite its meteoric growth on the stock market, where today it is worth more than 2.5 trillion dollars, it continues to have the favor of analysts: 65 of them advise buying its shares, eight hold them, and none sell them. They give it an upside potential of almost 40%… after a vertical rise of more than 2,000% in five years.

And yet, Nvidia’s growth story, like that of a newcomer to a rich club, arouses misgivings that are not so common in more established names such as Apple, Microsoft, Alphabet, Amazon or Meta. In this reticence there is something of a fear of the unknown: while smartphones, the cloud, search engines, e-commerce and social networks are established realities in the daily lives of billions of people, artificial intelligence, the ocean where Nvidia swims, despite already moving not inconsiderable amounts, continues to be more what it promises than what it delivers. And while the user does not directly see those tiny chips that Nvidia manufactures to insert into the guts of the devices, he does interact with the screens of the iPhone, he comes across Jeff Bezos’ delivery vans, he searches for words on the computer with Google, he speaks on WhatsApp and he passes photos on Meta’s Instagram.

That money that Nvidia generates, invisible to the human eye of the common citizen, together with its rapid growth, has been enough for it to be associated with past bubbles, especially with that of the dotcom. Among the latest comparisons, Reuters’ Jonathan Guilford paired it with Tesla on Wednesday. The similarities lie in that both dominate a growing segment — Tesla the electric car, Nvidia the AI ​​chips — and the market rewarded them with violent rises on the stock market, but Guilford points out one differential fact: when they were at their highest, Tesla shares were trading at 156 times expected earnings. Nvidia is trading at 38 times, more or less where it was the day before ChatGPT began, so its valuation seems closer to reality than that of Tesla, whose shares are now worth almost half what they were at their peak in November 2021.

Both are, in any case, desired prey for lovers of financial speculation: since no one is able to accurately predict how far the implementation of electric vehicles and artificial intelligence will go, or to what extent competitors will steal market share from them, the fluctuations are more pronounced.

Risks

The foundations on which the Nvidia building seems to be based do not mean that there are no growing risks for Nvidia, both business and regulatory. The latest results show somewhat lower margins, manufacturing problems at Blackwell, its new next-generation chip model, and revenue and profit forecasts that are slowing down. The fuel for continued growth on the stock market is usually a mix of growth rate and expectations, so an improvement, if it is done in percentages lower than expected, is usually synonymous with a stock market crash.

In addition, the U.S. Justice Department has issued subpoenas to the company and others seeking evidence that the chipmaker violated antitrust laws; if relations with China worsen under a Trump administration that launches an open trade war with Beijing, so too could its business; and Nvidia’s largest customers, including fellow Magnificent Seven members Amazon, Meta, Microsoft and Alphabet with the financial muscle to invest in innovation, are seeking to reduce their dependence on its chips by developing their own microprocessors, making it harder for it to maintain its monopoly position.

Hyun Ho Sohn, manager of the Fidelity Global Technology fund since 2013, sees other dark clouds. “There are underestimated risks to the scale and pace of adoption of generative AI. While GPUs are undoubtedly well positioned to meet the training needs of large models, these devices may become less necessary as we move into the inference phase of models,” he warns in a report published after the presentation of results. “The company is finding it harder to beat forecasts and the market is increasingly unlikely to tolerate setbacks,” he adds.

On the hunt for opportunities

Nvidia is not sitting back either, and beyond enjoying the fruits of success, it is on the hunt for opportunities: this week it joined a round of financing of more than 100 million dollars launched by the start-up Japanese startup Sakana AI, co-founded by former Google employees, is looking to take part in the next round of funding from OpenAI, the artificial intelligence developer behind the popular ChatGPT, which would value the company at more than $100 billion.

Meanwhile, the fortune of Nvidia co-founder and CEO Jensen Huang is tumbling with the stock price. On Tuesday, with the sharp drop, it fell by about $10 billion to $94.9 billion, its biggest single-day decline since the Bloomberg Billionaires Index began tracking his wealth in 2016.

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