Fear of missing out and the next big thing investment trends go hand in hand. Unfortunately, these “ingredients” do not mix well for long.
Since the rise of the Internet nearly 30 years ago, there hasn't been a next-big-thing technology, innovation, or trend that has come close to competing with it.
According to analysts at PwC, the advent of artificial intelligence (AI) is predicted to add $15.7 trillion to the global economy by 2030. With AI, software and systems are given autonomy over tasks that are normally overseen by humans. The catch is that these systems have the ability to learn and evolve over time without human intervention. The ability to become more specialized over time gives AI utility in every field and industry.
While most AI stocks haven't stalled over the past 18 months, this one has. Nvidia (NVDA -3.22%) Which undoubtedly sits on a pedestal above others.
Image source: Getty Images.
Since the start of 2023, Nvidia shares have risen 828% through June 19, 2024, the company has added nearly $3 trillion in market value and is undergoing a recent 10-for-1 stock split. Originally, Nvidia unsated Microsoft And apple This week will become the world's largest publicly traded company.
But while short-term catalysts help explain the excitement around AI and Nvidia, solid long-term headwinds are growing that suggest the world's hottest artificial intelligence stock is an irrational bubble. I'm what could eventually push it beyond the trillion-dollar market cap. Club
The euphoria surrounding Nvidia may be nearing a peak.
No company has benefited more directly from the AI revolution than Nvidia. The company's H100 graphics processing units (GPUs) have become the standard in AI-accelerated enterprise data centers, in short order. Nvidia's hardware is effectively the “brain” behind the split-second decision-making and computational power needed to train large language models and run generative AI solutions.
Recently, semiconductor analysts at TechInsights released data showing that 3.85 million GPUs were shipped in 2023. Nvidia was responsible for 3.76 million (98%) of those shipments. That makes it easy to understand why sales of the company's data center segment increased in its fiscal first quarter (ended April 28) compared to the year-ago period.
Additionally, demand has completely overwhelmed the available supply of AI-GPUs. When the demand for a good or service increases, it is normal for the price of that good or service to rise significantly. It's not uncommon to see H100 GPUs selling for around $30,000, pushing Nvidia's adjusted gross margin up to 78.4%!
Nvidia's first-mover advantages are also helping it on the innovation front. With competitors trying to play catch-up with the H100, Nvidia is busy developing its next-generation AI-GPU architecture. It unveiled Blackwell in March, which will launch in the second half of the current calendar year, as well as Reuben, which came out in June and is expected to be released in 2026. Based on calculations, catching up to Nvidia could prove challenging for its external competition.
With Nvidia closing the door on Wall Street sales and growth expectations for more than a year, it's understandable why fear of missing out (FOMO) has gripped investors. Unfortunately, the combination of FOMO and the investment trends of the next big thing has historically been a train wreck waiting to happen.
Image source: Getty Images.
Nvidia may struggle to remain a trillion dollar company by 2026.
The single biggest enemy for Nvidia and its shareholders is history. While history shows that the major stock indexes rise over the long term, it's also pretty clear that the next big thing investment trends go through a maturation process that includes a bubble-bursting event.
Since the mid-1990s, every game-changing technology, innovation, or trend has resulted in an early-stage bubble. While not an exhaustive list, it includes the Internet, business-to-business, genome decoding, nanotechnology, housing, China stocks, 3D printing, cannabis, blockchain technology, augmented reality, and the metaverse. Without fail, investors always overestimate these game-changing innovations/trends by consumers and businesses, leading to high expectations not being met. Expecting AI to reverse this trend (with a small “f”) would be foolish.
To add fuel to the fire, most businesses don't have a blueprint for how they're going to use artificial intelligence to boost their sales. While many influential businesses in the US are investing in AI solutions because it's the hot thing to do right now, it's not really moving the needle for the majority of these businesses (outside of hardware players like Nvidia). Every technology needs time to mature, and AI is nowhere near being a mature innovation at this stage of the game.
Competition is another obvious problem. Even if Nvidia maintains its GPU compute advantages over its peers, the company is destined to lose share. Advanced Micro Devices And Intel Both are developing their own AI-GPUs designed to compete directly with the H100 in AI-accelerated data centers. With strong demand for Nvidia's chips, AMD and Intel should have no trouble gaining share from impatient enterprise customers.
As I've pointed out on numerous occasions, Nvidia's competition is also internal. Microsoft, Meta platforms, AmazonAnd the alphabet Comprises approximately 40% of Nvidia's net sales.
While it's fantastic that Nvidia can call some of the world's most influential businesses its top customers, it's just as concerning that Microsoft, Meta, Amazon, and Alphabet have built-in AI-GPUs for their respective data centers. are preparing Again, Nvidia could maintain its competitive compute advantage and still lose if these four companies choose to rely on their chips and the largest publicly traded company by market cap. They reduce their dependence on
As the number of AI-GPUs continues to increase, the scarcity that pushed the H100's selling price into the stratosphere is going away. In other words, it's a scenario of a return to historical norms for Nvidia's adjusted gross margin.
After observing similar scenarios Multiple With the next big innovation in the past three decades, it's only logical to expect Nvidia's FOMO to fade as well. When that happens, which I expect to be by 2026 or earlier, Nvidia may struggle to remain a trillion-dollar company.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet, Amazon, Intel and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, MetaPlatforms, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.