Artificial intelligence (AI) leader Nvidia is about to sink more than 50%.

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Three decades ago, the advent of the Internet changed the axis of growth for the American and global economy forever. While there have been a number of next-big-thing trends and wildly popular innovations trying to follow in its footsteps, none have so far matched what the Internet did for business.

The rise of artificial intelligence (AI) is seen by some pundits as the most significant advance toward innovation since the Internet became mainstream. When discussing “AI,” I'm talking about the use of software and systems for tasks that would normally be overseen by humans. Most importantly, these software and systems are being given the tools to learn and evolve over time without human intervention, which opens up endless possibilities across virtually all sectors and industries.

How big is the global AI opportunity? Last year, PwC researchers released a report (“PwC's Global Artificial Intelligence Study: Exploiting the AI ​​Revolution”) that estimated that AI would add $15.7 trillion to the global economy by the end of the decade. This otherworldly figure would be derived from a combination of increased productivity ($6.6 trillion) and consumption side effects ($9.1 trillion).

Wall Street and investors won't ignore that big number, which is why the AI ​​juggernaut Nvidia (NASDAQ: NVDA ) 2023 is virtually unstoppable from the start.

Image source: Getty Images.

On paper, AI titan Nvidia has been flawless.

In just over 17 months, Nvidia's stock has gained more than 700% and gained more than $2.6 trillion in market value. Last week, the company briefly backtracked apple After the closing bell on Friday, June 7, Nvidia completed a 10-for-1 forward stock split to become the second largest publicly traded company in the US. This marks its second stock split since July 2021.

Although Nvidia has multiple operating segments, its rapid growth rate has been entirely fueled by sales of high-powered graphics processing units (GPUs) used in AI-accelerated data centers.

Nvidia's H100 GPU has become the best choice for businesses that want to train large language models and run generative AI solutions in their high-compute data centers. According to technology and consulting firm Jon Peddie Research, Nvidia gained an 88% share of the AI-GPU market in the first quarter.

The most popular innovation since the Internet became mainstream is its benefits. With demand for the company's GPUs easily outpacing supply — even the company's next-generation Blackwell chips some Wall Street analysts think will be sold well into 2025 — Nvidia makes sense of its price points. has been able to grow profitably and pump up its margins. . As of April 28 (the end of Nvidia's fiscal first quarter), the company's gross margin reached an almost unbelievable 78.4 percent.

Nvidia is clearly taking advantage of its first mover advantages and the fact that the world's leading chip fabrication company Taiwan Semiconductor Manufacturing Nvidia has expanded its chip-on-wafer-on-substrate capability to allow it to gradually sell more of its AI-accelerating chips.

But while Nvidia has been effectively flawless on paper, it's fighting an uphill battle against history, which suggests it will eventually sink by at least 50 percent, if not more.

Image source: Getty Images.

Over three decades, history has also been impeccable when it comes to inventing the next big thing.

As I pointed out earlier, there is no shortage of next-big-thing trends, technologies, and innovations that have been expected since sliced ​​bread is the next big thing. Many of these trends have one or two leading stocks that have skyrocketed.

The problem is that all of these innovations have a common phenomenon: a bubble-bursting event. Both professional and everyday investors have a habit of overestimating and/or adopting new technologies. Consequently, these cowardly innovations and trends are effectively set up for failure.

Don't believe me? Let's walk down memory lane…

  • Cisco Systems And Amazon He was widely seen as the leader of the dot-com revolution. When the dot-com bubble burst, Cisco and Amazon shed nearly 90% of their respective values, compared to their pre-dot-com-bubble all-time highs. Although the Internet, network infrastructure, and e-commerce have been wildly successful, these innovations need time to mature.

  • Genome-decoding companies Celera and Human Genome Sciences exploded out of the gate in the late 1990s, promising to unlock the secrets of the human genome at a low cost and wow investors. But, again, the technology was not cheap enough, nor ready for mainstream application. Both companies would fall from their record highs before being acquired.

  • Like 3D printing stock 3D Systems And Stratasys from 2011 to 2013 with the hope that 3D printing systems would become a hot-ticket item for consumers. Unfortunately, this user factor failed to materialize, resulting in 3D Systems and Stratasys losing about 95 percent of their value.

  • Blockchain technology was another hot-button innovation that was expected to take Wall Street by storm in the mid-2010s and revolutionize everything from banking to supply chain tracking. But after many years, blockchain still has minimal real-world utility. Since cryptocurrencies and blockchain go hand in hand, Coinbase Globaland the nearly 90% decline it endured, exemplified the trend of another next-big-thing-the-bubble-bursting.

  • Electric vehicles (EVs) were expected to make internal combustion engine vehicles a thing of the past. Although the industry leader Tesla While profitable, demand for EVs has declined significantly as consumers become skeptical of the current landscape of charging infrastructure. Tesla shares have retreated 75% from their peak.

The list goes on, but I'm going to spare you the full catalog of industry-leading companies with can't-miss innovations that ultimately cut between 50% and 99% of their cost.

At no point in the last 30 years has the trend of the next big thing avoided a bubble-bursting event. While Nvidia is flawless on paper, history has a long track record of not getting it wrong.

If that wasn't enough, Nvidia will face big-time external and internal competition in the current and next calendar year. both of them Intel And Advanced Micro Devices are rolling out AI-GPUs designed to target Nvidia's H100 GPU in high-computing data centers. Even if Nvidia's chips retain a compute advantage, the mere presence of these competing GPUs will reduce the shortfall that Nvidia can afford to increase the price of its hardware.

Additionally, Nvidia's top four customers, which account for about 40% of its net sales, are developing GPUs internally for their AI data centers. Even if these chips are only complementary to the H100 GPUs ordered from Nvidia, this likely signals the peak of reliance on Nvidia products.

While it's impossible to pinpoint a top, historical data suggests that Nvidia is. at last Will lose more than 50% of its value.

Should you invest $1,000 in Nvidia right now?

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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Sean Williams has positions at Amazon and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Cisco Systems, Coinbase Global, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. Motley Fool recommends 3d Systems and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a Disclosure Policy.

Prediction: Artificial Intelligence (AI) Leader Nvidia Is Going to Plunge by More 50% Originally published by The Motley Fool.

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