Warning: Nvidia May Face Competition and a Tesla-Like Trajectory
Nvidia’s (NVDA) stock has witnessed a remarkable rise since late 2022, but it has recently declined by 10%. Analysts believe NVDA’s trajectory could resemble Tesla’s (TSLA) from 2021, which saw a surge followed by a sharp correction due to increased competition.
Tesla’s Trajectory: A Cautionary Tale
Tesla experienced a meteoric rise in 2021, but its stock price has since plummeted to nearly a third of its peak. This decline can be attributed to the market’s underestimation of how quickly competition would emerge, leading to an oversupply of electric vehicles (EVs).
Captive Consumers vs. Corporate Procurement
Many consumers become captive to certain brands due to convenience and limited decision-making bandwidth. However, corporations have a different approach to procurement. NVDA’s sales are primarily to corporations, and these entities are less likely to become solely dependent on one supplier due to risk concerns.
The Magnificent Seven’s Response
Given NVDA’s significant market cap of $2 trillion, the “Magnificent Seven” may be motivated to develop their own AI chips to reduce reliance and increase profit margins. Companies like Microsoft, Alphabet, Amazon, and Meta are reportedly working on in-house AI chip development.
Risks to the Bearish Outlook
While the author maintains a bearish stance, it’s important to note potential risks. NVDA may sustain or even grow its market cap if AI chip forecasts remain optimistic, or the “Magnificent Seven” may encounter difficulties in developing their own chips.
Conclusion: Exercise Caution
The author advises caution for investors, particularly those with limited risk tolerance. While NVDA’s track record suggests valuations could continue to increase, the potential for competition and alternatives may significantly impact its long-term prospects. Investors are urged to carefully consider their risk exposure and invest wisely.
