Nvidia's Growth Could Wane Amid Rising AI Chip Competition

A new report highlights Nvidia's remarkable valuation surge driven by AI, now at $3.44 trillion. However, potential supply increases and competition may diminish its pricing power, impacting future growth for the tech giant.

Date: 27-10-2024

AI Rating: 5

The report discusses the revolutionary impact of artificial intelligence (AI) on business, particularly highlighting Nvidia's significant valuation increase attributed to the demand for its AI graphics processing units (GPUs). Currently valued at $3.44 trillion, Nvidia has benefited immensely from the AI boom, with strong demand resulting in gross margins exceeding 75% as of July 28. Analysts predict AI could add $15.7 trillion to the global economy, positioning Nvidia at the forefront of this growth.

However, the report indicates that Nvidia's competitive edge, specifically in AI-GPU scarcity, is likely to diminish by 2025. This change is anticipated due to advancements in chip manufacturing capacity by Taiwan Semiconductor Manufacturing, which is expected to increase to 80,000 wafers per month ahead of schedule. The expected influx of available GPUs could lead to increased competition from other companies, such as Advanced Micro Devices (AMD), which is ramping up its own AI chip production.

Furthermore, major clients of Nvidia, including Microsoft, Meta Platforms, Amazon, and Alphabet, are developing their own AI-GPUs. Although these internal chips may not match Nvidia's performance, their lower cost presents a significant alternative for these major companies. Consequently, this shift could undermine Nvidia’s pricing power and reduce its previously unprecedented gross margins.

Investors should note that while Nvidia continues to dominate the AI chip market, the anticipated surge in supply and the emerging competition could result in a more challenging market environment for the company moving forward. This could impact Nvidia's stock performance significantly, underlining the need for potential investors to closely monitor these developments.

Stocks: NASDAQ:NVDA NYSE:TSM NASDAQ:AMD