Nvidia's stock has recently experienced a significant decline, dropping 17% from its record high of $152.89 in November, bringing it perilously close to bear market territory, which is defined by Wall Street as a 20% decline from a peak. This downturn has been exacerbated by comments made by Microsoft CEO Satya Nadella, suggesting a cooling in the demand for AI chips, traditionally a strong market for Nvidia.
In an interview featured on the B2 podcast with hosts Bill Gurley and Brad Gerstner, Nadella indicated that Microsoft's supply issues have shifted. He stated, "I am power [constrained], yes, I'm not chip supply constrained," clarifying that while the company faced significant constraints in the past, they anticipate a more favourable situation by the first half of 2025 and improving conditions leading into 2026. This raises questions about the ongoing demand for Nvidia's products, especially since Microsoft is estimated to account for around 20% of Nvidia's revenue, making its insights particularly impactful on investor sentiment.
Since Nadella's remarks, Nvidia's shares have fallen an additional 7%. This shift signals a potential change in the supply and demand dynamics for Nvidia's sought-after AI chips, which have enjoyed unprecedented demand over the past two years as businesses have rushed to develop large language models. The intensity of demand at its peak led Nvidia to selectively allocate chips to certain companies, highlighting the competitive landscape within the tech sector.
Despite the latest downturn, some analysts, like Wedbush's Dan Ives, maintain that this decline is merely a temporary setback and that Nvidia's future prospects in AI remain strong. He suggests that while there may be current pressures, the underlying demand for AI technology persists, and Nvidia's position as a leader in the GPU market will sustain its growth trajectory in the long term. Furthermore, it has been reported that Nvidia's next-generation Blackwell GPU chip continues to face a backlog of at least one year for new orders, indicating that interest in their technology remains robust.
However, Nadella's comments complicate the narrative that has driven Wall Street's optimism regarding Nvidia's growth. The shift from being supply constrained to a potential stabilisation of supply could alter the expectations of investors hoping for continuous exponential growth. The evolving landscape for AI automation in business practices, coupled with the fluctuations in stock prices, reflects a pivotal moment for companies heavily reliant on AI technologies and their underlying infrastructure.
Source: Noah Wire Services