BIG swings in Nvidia shares have reignited debate about the staying power of the chipmakers rally. While the stocks valuation and threat of competition are major concerns, one variable is key: durability of demand.
For more than a year, Nvidias customers have been snatching up all of the AI accelerator chips the company can produce. That fuelled a doubling in Nvidias revenue in its last fiscal year to $61 billion (R1.1 trillion) and sales are projected to nearly double again in the current period.
To bullish investors, that spending is only just beginning as more companies seek ways to utilise artificial intelligence to help expand their businesses, create new products and improve efficiency. Nvidias resulting revenue and profit growth in that scenario would power the stock higher.
For bears, theres still plenty of uncertainty about whether AI can live up to the hype and start delivering sufficient returns on investment. If not, demand is destined to cool and lead to a reckoning for Nvidias lofty valuation, which at 23 times projected sales is the most expensive in the S P 500 Index.
Its that scenario which Michael Kirkbride, a partner and portfolio manager at Evercore Wealth Management, says is his biggest fear about Nvidia, even though he remains bullish on the stock.
