Artificial intelligence (AI) stock Nvidia will struggle to maintain its trillion-dollar market cap by 2026

Since the proliferation of the Internet around 30 years ago, no major technology, innovation or trend has come close to rivaling it…until now.

The arrival of artificial intelligence (AI) is expected to add $15.7 trillion to the global economy by 2030, according to PwC analysts. With AI, software and systems gain autonomy over tasks that would normally be supervised or undertaken by humans. The problem is that these systems have the ability to learn and evolve over time without human intervention. The ability to become more proficient over time makes AI useful in almost every sector and industry.

Although most AI stocks have been unstoppable over the past 18 months, it is Nvidia (NASDAQ:NVDA) which undoubtedly sits on a pedestal above all others.

Image source: Getty Images.

Since the start of 2023, Nvidia shares have gained 828% as of June 19, 2024, with the company adding nearly $3 trillion in market value and undergoes a recent 10-for-1 stock split. In fact, Nvidia reversed Microsoft And Apple this week to become the world’s largest publicly traded company.

But while short-term catalysts help explain the euphoria surrounding AI and Nvidia, tangible long-term headwinds are mounting, suggesting that the world’s hottest artificial intelligence stock is in a irrational bubble which could, in the long term, push it out of the trillion-dollar market capitalization. club.

The euphoria around Nvidia may be close to a crescendo

No company has benefited more directly from the AI ​​revolution than Nvidia. The company’s H100 graphics processing units (GPUs) have quickly become the standard in AI-accelerated enterprise data centers. Nvidia’s hardware is actually the “brains” behind the split-second decision-making and computing 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. This provides insight into why the company’s Data Center segment more than quintupled its sales during the fiscal first quarter (ended April 28), compared to the year-ago period.

Additionally, demand has completely exceeded the available supply of AI GPUs. When demand for a good or service overwhelms supply, it is normal for the price of that good or service to increase significantly. It’s not uncommon to see H100 GPUs selling for around $30,000, which has brought Nvidia’s adjusted gross margin to a scorching 78.4%!

Nvidia’s advantages as a first mover also help it on the innovation front. While its competitors try to catch up on the H100, Nvidia has been busy developing its next-generation AI-GPU architecture. It revealed Blackwell in March, which will begin rolling out in the second half of the current calendar year, as well as Rubin, which was revealed in June and is expected to be released in 2026. On a…

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