In a stunning turn of events, Nvidia, the leading player in the artificial intelligence (AI) revolution, has seen its stock plummet by 26% in just six weeks. This decline, wiping out nearly $900 billion in market value, has raised concerns about the sustainability of the AI bubble. While Nvidia’s stock had soared to record highs, recent developments suggest that the company may have a long way to fall.
Nvidia’s dominance in the AI market was largely driven by its H100 graphics processing units (GPUs), which became the go-to choice for businesses seeking to run generative AI solutions. Last year, TechInsights estimated that Nvidia accounted for the majority of GPUs shipped to high-compute data centers. This near-monopoly position allowed Nvidia to increase the price of its H100 GPUs and boost its adjusted gross margin.
However, the landscape is changing. Intel is set to introduce its Gaudi 3 AI-accelerating chip, while Advanced Micro Devices continues to ramp up production of its cost-effective MI300X AI-GPU. Although these chips may not match Nvidia’s compute capabilities, the company’s inability to meet the overwhelming demand for its GPUs opens the door for competitors to fill the void.
Furthermore, Nvidia’s largest customers, who are developing their own AI chips, pose a threat to the company’s market share. While these chips may be cheaper, they could still find a place in data centers, reducing Nvidia’s dominance.
The signs of trouble are already emerging. Nvidia’s adjusted gross margin, which had been expanding, is forecasted to decline for the first time since 2022. This suggests that the scarcity of AI-driven GPUs, which drove up prices, is starting to fade.
Given the history of next-big-thing innovations, it is not surprising that concerns about an AI bubble are mounting. Previous trends, such as the internet and cryptocurrency, experienced significant declines of around 90% following their respective bubbles. While Nvidia’s established segments, including its GPU business for data centers, gaming, and cryptocurrency mining, may provide some stability, history suggests that market leaders in next-big-thing trends are not immune to substantial declines.
As headwinds continue to mount for Nvidia, investors are left wondering if the company’s trillion-dollar market cap is sustainable. With the rise of competitors, declining margins, and the potential bursting of the AI bubble, an 80% decline in Nvidia’s stock is not just a possibility but an expectation based on historical patterns.