Nvidia: High Expectations and Growing Challenges – AI Market Leader in Focus

Nvidia, the heavyweight in artificial intelligence (AI), has had an outstanding year, driven by the immense popularity of OpenAI's ChatGPT since November 2022. The revolutionary AI platform reached one million users in record time and sparked a global shift in AI applications. In particular, large language models that produce easily understandable results from vast amounts of data came into focus. The increasing importance and demand for fast, energy-efficient devices led to a significant rise in IT budgets, especially for modern graphics processors (GPUs) – Nvidia's specialty. This was also reflected in sales, profits, and share prices, making the company the third-largest firm in the S&P 500. Despite its impressive growth, Nvidia faces new challenges. Analysts, including experienced hedge fund manager Doug Kass, are critical of future growth prospects. The impressive profit increases of the past have led to higher expectations, which are hard to surpass. In the past 12 months, Nvidia's revenues surged almost 200% to $96.3 billion, while net profit in the last quarter climbed to $17 billion – more than double compared to the same period last year. However, growth is slowing: in the second quarter of the fiscal year, revenues grew by "only" 122%, the lowest increase since last summer. CEO Jensen Huang forecasts third-quarter revenues of $32.5 billion, representing a year-on-year growth of 79% – an impressive figure, yet one that makes many investors nervous. Additional concerns include potential production issues and the actual size of the addressable market. Another factor is Nvidia's stock price, which is about 10% below its June peak, while the S&P 500 hits new all-time highs. Nvidia's price-to-earnings ratio (P/E) currently stands at 74, a high value that reduces to 43 when future earnings are considered – but even this is not a bargain. Kass remains cautious and predicts a volatile future for Nvidia. Critical to Nvidia's valuation is the successful launch of the next generation of Blackwell chips, which are supposed to be faster and more energy-efficient than the H200. These are particularly important for major cloud providers like Amazon AWS, Microsoft Azure, and Google Cloud. Despite the optimism, there have been delays: instead of already being available, Blackwell chips are still in the prototype testing stage. Expectations for Blackwell are high, and Nvidia anticipates the chips will significantly contribute to revenues by the end of the year. However, if the launch is further delayed or the chips do not meet expectations, Nvidia could face difficult times ahead. Finally, Kass warns of possible volatility and the risk of share price declines if Nvidia's future sales and profit figures fall short of expectations.