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观点 | 英伟达,到顶了?

Opinion | Nvidia, reached the top?

半導體行業觀察 ·  Jun 11 18:26

Source:Observation of the semiconductor industry.

Editor's note: "US Stock Gold Mining" Keep up with daily market trends, insight, and consolidate hot and outstanding stocks, providing multi-dimensional investment opportunities for Mooer and helping them grasp investment opportunities with one chart! Focus on: 1. Performance and stock prices take off! Global fast fashion giant $Gap Inc (GPS.US)$ soared nearly 29% after its performance, reaching a new high for the year. Gap announced its first fiscal 2023 first-quarter results, with net sales of $3.4 billion, exceeding analysts' expectations of $3.28 billion, and earnings per share of $0.41, with overall comparable sales growth of 3%, better than expected 0.91%. In addition, the gross profit margin for the quarter reached 41.2%, higher than analysts' forecast of 38.5%. Its subsidiary brand Old Navy's same-store sales grew by 3%, exceeding market expectations of 2.5%. Based on this, Gap raised its sales and operating profit outlook for the year. Baird has recently raised its target share price for Gap from $23 to $28, and Goldman Sachs has raised its target share price for Gap from $20 to $27. 2. US electric power stocks collectively agitated! The largest wind and solar power generator developer in the United States $NextEra Energy (NEE.US)$, the fourth largest power plant in the United States $Southern Company (SO.US)$, the power and natural gas company $CenterPoint Energy (CNP.US)$, and the electrical production and transmission company $Edison International (EIX.US)$ have all reached new highs for the year. On the news front, as AI technology often requires a lot of energy to develop and operate, utility stocks are becoming a new opportunity for investors. 3. Low-key AI beneficiaries! Data storage giant

Before the article begins, we would like to make it clear that this article mainly summarizes the views of some analysts and does not represent our endorsement of these views. In fact, some domestic AI chip practitioners have told the author that after the announcement of Rubin and subsequent chip plans (details can be found in the previous article, Nvidia's latest GPU and connectivity roadmap.),$NVIDIA (NVDA.US)$In the domination of AI chips (especially in the training end), no opponents can be found.

However, considering Nvidia's amazing growth in recent years and their selling of a large number of chips used to accelerate AI algorithms, some investors are now beginning to worry that a financial massacre is brewing.

The risks for Nvidia have increased significantly.

Nvidia may soon become the world's most valuable company, but people are increasingly concerned that this outstanding market performance cannot continue indefinitely. A recent report by Reuters emphasized that short bets against Nvidia have now reached $34 billion, nearly twice the amount bet against Tesla ($19 billion) and Apple ($18 billion).$Apple (AAPL.US)$nineteen billion dollars$Tesla (TSLA.US)$eighteen billion dollars

The GPU manufacturer, headquartered in Santa Clara, recently had a market capitalization of 30.11 trillion US dollars, entering the "30 trillion US dollar" club with Apple and$Microsoft (MSFT.US)$. The last time Nvidia's market capitalization surpassed Apple was in 2002, five years before the release of the first iPhone. At that time, the market capitalizations of both companies were less than $10 billion. But now, due to the unlimited demand for AI chips, it is expected that Nvidia will eventually surpass Microsoft and become the world's most valuable company.

The explosive growth of generative AI, chatbots, and other machine learning algorithms has fueled the sudden and significant growth in Nvidia's market capitalization. The company's soaring stock price is largely due to its flagship H100 computer chip, which supports the vast majority of large language models used today, including OpenAI's ChatGPT and products from Microsoft, Facebook, and Instagram parent company Meta.

Today, everyone invests in some AI-related enterprises or financial speculation, and Nvidia alone has successfully raised its stock price by 143% this year.

Founded in 1991 as a niche technology company producing graphics cards for gamers, Nvidia is now at the center of the AI revolution reshaping the global economy, with about 80% of the data center AI chip market. Its stock has risen more than 3,000% in the past five years.

In May of this year, the company reported a quarterly profit of $14 billion and said it will design new chips every year instead of every two years. Currently, Nvidia processors are in short supply, and the company is about to release its next-generation AI chip, the H200, which the company claims has exceptional memory capacity and bandwidth.

Michael O'Rourke, chief market strategist at Jonestrading, said that because analysts expect the company's profit growth rate to be even faster than its stock price, the stock is still attractive compared to other large technology companies like Microsoft, whose growth rate is not as fast. "Under the same valuation, Nvidia's growth rate is much faster," he said. "This fundamental growth is unmatched in a super-listed company."

However, as MarketWatch pointed out, investors in 2023 are already questioning how long Nvidia can maintain its growth rate, which has been above average in recent years. Nvidia's Q1 FY2025 performance increased by 262% year-on-year, but it is expected that this annual growth will slow significantly in the near future.

Some industry observers are beginning to sound the alarm about unregulated AI speculation, predicting that the AI bubble will soon burst, making Nvidia, Microsoft, and many other large technology companies have more realistic expectations for the future of technology. Professor John Norton recently told The Guardian that nothing can continue to grow exponentially forever, pointing out that our one and only planet cannot be "covered in data centers."

Observation of semiconductor industry.

Norton says that AI technology is causing an environmental disaster, and shareholders will soon realize that chatbots are following the same path as the technology and market disasters before the first Internet bubble. Researchers at Macro Polaris even set a date for the inevitable bursting of the AI bubble, predicting that 2026 will be the year of liquidation after another brief growth period in 2025.

Meanwhile, according to reports, hedge funds suddenly changed strategies last week, selling semiconductor stocks (beneficiaries of the AI boom) and instead rushing to buy software. Goldman Sachs Group Inc.'s top brokerage department said fund managers sold US technology stocks for the third consecutive week. Among tech stocks, as of June 7th, semiconductor and semiconductor equipment stocks were nominally the most sold, while software stocks were the most bought. This is the opposite of last week's trading strategy.

Vincent Lin of Goldman Sachs believes that "the industry's stance may change." The bank said the rebound in the software industry was driven by profit improvements and dynamic oversold positions at S&P Global Inc. and Guidewire Software. Will Tamplin, senior analyst at Fairlead Strategies, said:"Short-term and long-term, semiconductors still have a strong upward trend compared to software, so we don't have enough evidence in our work to suggest a change in leadership in the tech sector."$CrowdStrike (CRWD.US)$Holdings Inc. and $Guidewire Software (GWRE.US)$$Guidewire Software(GWRE.US)$ Inc.'s earnings improvement and catalyst for dynamic oversold positions.

Will Tamplin, senior analyst at Fairlead Strategies, said: "Short-term and long-term, semiconductors still have a strong upward trend compared to software, so we don't have enough evidence in our work to suggest a change in leadership in the tech sector."

Will history repeat itself?

As Nvidia soared, everyone thought of another company that was once the star of the show: Cisco.$Cisco (CSCO.US)$.

After its launch in 1990, Cisco's stock price rose more than a thousand times in ten years, reaching a high of $80 per share on March 27, 2000. But then it was hit hard by the bursting of the Internet bubble and fell to a low of $8.60 per share on October 8, 2002.

More than 20 years have passed and Cisco still hasn't reached its peak in March 2000. In the past decade, its stock has had an annual return rate of 11%, which is on par with Morningstar's US market index (including 10.9% dividend) but lower than Goldman Sachs (including 14.6% dividend).$Nasdaq Composite Index (.IXIC.US)$Will Nvidia suffer the same fate? Or will it achieve the same long-term performance as other innovative companies like Apple (AAPL)? Investors must consider the differences in the business models of the two companies, as well as the current and past market backgrounds.

Nvidia may be riding on the wave of interest in AI - as its chips play a leading role in the technology - but from a broader perspective, the stock is still recovering from the bear market of 2022. In any case, some, like Harding Loevner fund managers Chris Mack and Rick Schmidt, see similarities between today's Nvidia and Cisco of the 1990s.

As Mack and Schmidt point out, Nvidia's business has undergone tremendous changes in a short period of time. From 2017 to 2022, the company's total revenue increased from $7 billion to $27 billion. This growth is accelerating. This fiscal year, the company's annual revenue is expected to more than double to $58 billion, and by 2026, this number will break through the $100 billion mark. This means a growth of 14 times in 10 years.

Nvidia's main driver of growth is its data center business, as large-scale computing and artificial intelligence workloads demand an eye-popping amount of computing power. By 2023, this division will account for 56% of Nvidia's revenue, up from 12% in fiscal year 2017. Market expectations are that by 2026, its revenue share will reach 82%.

At the beginning of the 21st century, Cisco enjoyed a similar superstar status, with revenue and profits growing exceptionally fast. In the book"The Halo Effect," author Phil Rosenzweig recalls how Cisco was praised as the "king of the Internet."

According to a 2000 Fortune magazine article on May 15, Cisco's reputation factors included the charm of CEO John Chambers, the company's sharpness in identifying, acquiring, and integrating targets that aided its product diversification and complementarity, and its "extreme focus on the customer." Cisco became one of the most valuable companies in the world, with a market cap of $555 billion, surpassing Microsoft. However, this did not last. The company did not avoid the impact of the economic cycle and the large-scale reduction of capital expenditures by telecom operators after the bursting of the Internet bubble.

So, is Nvidia overvalued?

Given Nvidia's solid fundamentals and expectations of rapid growth, investors seem to believe that the company's glory days will not end soon. According to Jefferies' report, the stock is a must-have for many portfolio managers and a component of many hedge fund portfolios.

Given Nvidia's sound fundamentals and expected rapid growth, investors seem to believe that the company's brilliance will not end soon. According to Jefferies' report, the stock is a must-have for many portfolio managers and is also part of many hedge fund portfolios.

According to Brian Colello, the technical director of Morningstar, "Nvidia is larger and more stable before its vigorous development, while Cisco is a start-up with a smaller foundation, although its growth is impressive." He added, "Most of Cisco's revenue comes from purchases and construction based on the expectation of Internet growth. With Nvidia, we see its GPU immediately used for training AI models." In addition, "Nvidia's GPU has a shorter life span than Cisco's network devices, which we believe reduces the possibility of overbuilding." Colello believes that Nvidia's stock price valuation is reasonable after the company announced third-quarter earnings and made optimistic fourth-quarter forecasts.

"Most of Cisco's revenue comes from purchases and construction based on the expectation of Internet growth. With Nvidia, we see its GPU immediately used for training AI models." He added, "Nvidia's GPU has a shorter life span than Cisco's network devices, which we believe reduces the possibility of overbuilding." According to Morningstar, it is difficult to assert whether the market is in a bubble considering market conditions. The latest survey by Bank of America of institutional investors shows that some niche industries, such as artificial intelligence, may be closer to bubbles than other industries (although their importance is not as high as the risk of high inflation, systemic credit events, and global recession). As long as the world economy does not slow down more than expected and US inflation achieves a soft landing, the market situation may remain favorable and valuations may remain high. However, if the inflation rate does not approach the target range of the Federal Reserve, long-term high interest rates may depreciate high-priced stocks, including AI-related stocks.

Morningstar believes that Nvidia has a broad moat, which is due to its intangible assets around its graphic processing units, and the conversion cost of its proprietary software (such as the Cuda platform for AI tools, which enables developers to use Nvidia's GPU to build AI models) is increasing. For long-term investors, fundamentals should be the most important factor in deciding whether to buy or not, and valuation fluctuations provide opportunities to buy when the stock price is cheap. Regardless of how you view Cisco's performance, this is a condition that Nvidia cannot currently satisfy.

Generally speaking, considering market conditions, it is difficult to assert whether the market is in a bubble. According to the latest survey by Bank of America of institutional investors, some niche industries, such as artificial intelligence, may be closer to bubbles than other industries (although their importance is not as high as the risk of high inflation, systemic credit events, and global recession).

As long as the world economy does not slow down more than expected and US inflation achieves a soft landing, the market situation may remain favorable and valuations may remain high. However, if the inflation rate does not approach the target range of the Federal Reserve, long-term high interest rates may depreciate high-priced stocks, including AI-related stocks.

Fundamentals also need to be considered. So far, Nvidia has a quasi-monopoly position in the field of artificial intelligence, which means high demand and steady pricing power. "Nvidia's growth is happening during a period of rising interest rates, which may run counter to strong capital expenditures," Colello said. "Cisco rode on a wave of good economic times in the 1990s, but many of Nvidia's customers are cuttings costs elsewhere and buying its GPU." Nvidia's competitors, such as AMD and Intel, are struggling to catch up and take advantage of the lucrative profit margins in the AI field. Historically, regardless of the prospects, valuations and fundamentals tend to revert to the mean in the long run, as high-profit industries often attract competition, provided that new entrants can differentiate themselves from existing companies and seize market share.

Morningstar believes that Nvidia has a broad moat, thanks to its intangible assets around its graphic processing units, and the increasing conversion cost of its proprietary software (such as the Cuda platform for AI tools, which enables developers to use Nvidia's GPU to build AI models). For long-term investors, fundamentals should be the most important factor in deciding whether to buy or not, and valuation fluctuations provide opportunities to buy when the stock price is cheap. Regardless of how you view Cisco's performance, this is a condition that Nvidia cannot currently satisfy. Nvidia's competitors, such as AMD and Intel, are struggling to catch up and take advantage of the lucrative profit margins in the AI field. Historically, regardless of the prospects, valuations and fundamentals tend to revert to the mean in the long run, as high-profit industries often attract competition, provided that new entrants can differentiate themselves from existing companies and seize market share.

Morningstar believes that Nvidia has a broad moat, which is due to its intangible assets around its graphic processing units, and the conversion cost of its proprietary software (such as the Cuda platform for AI tools, which enables developers to use Nvidia's GPU to build AI models) is increasing.

Potential competitors

Many people are challenging Nvidia.

Last week, as Nvidia released Rubin, AMD announced the launch of the AMD Instict MI325X accelerator, demonstrating how the company plans to lead the AI field in performance and memory. Intel plans to find its niche market in this coveted market and announced the launch of the new Gaudi 3 AI chip for customers who are cost-conscious.

With the rise of the AI revolution, who will win the AI chip war is already clear, but the future is unpredictable.

Akiko Fujita of Yahoo Finance explains, "Considering what they've achieved, it's hard to say who the biggest winner is besides Nvidia. Looking solely at data center revenue, the category most affected by artificial intelligence hype grew 427 percent in the most recent quarter compared to the same period last year." For this reason, he believes that Nvidia may have won this battle, but they have not yet won the war. Competitors like AMD and Intel are attacking in a big way.

Beth Kindig, chief analyst at I/O Fund, analyzed, "In this artificial intelligence war, in the artificial intelligence competition between AMD and Nvidia, I estimate that AMD can occupy 10% to as much as 20% of the market share. This is based on the long-standing competition between these two companies. Intel's market share has far exceeded 20%. Compared with Nvidia, Intel is a more manageable competitor. I think AMD will become a stronger competitor of Nvidia."

KeyBlanc Capital Markets analyst John Vinh also discussed why Nvidia's monopoly in the microchip industry is worrying and why there are clear signs that other companies have the opportunity to recapture some of the largest share from this Silicon Valley technology giant. "The market really needs a reliable second source of Nvidia. Nvidia's AI chip gross margin is 90%, and the entire industry urgently needs a reliable second source for emerging fields."

Apple, another dark horse in this AI chip war, is Qualcomm.

Due to the neural engine installed on the chip, Apple has been promoting that its latest laptops and tablets have been optimized for artificial intelligence. At the recent developer conference, Apple plans to showcase a range of new AI features. Apple also announced at the developer conference that it will use its own server chip to support AI features on its devices.

As for Qualcomm, the company has been touting its abilities on AI PCs in the past two years. Microsoft noticed this and partnered with the San Diego-based company to release new Surface laptops and Surface Pro tablets. Dan Howley continued, "If you look at what Microsoft has done, they've put out a new computer using Qualcomm chips, and that's a big deal. It shows they're confident in Qualcomm's abilities."

In terms of chips, Nvidia is also facing competition from a series of startups. Meanwhile, various alliances have also sprung up around Nvidia's CUDA and interconnect technologies.

In addition, Nvidia is also facing a potential challenge as it competes with some of its biggest customers. This includes cloud providers such as Amazon and Google, who are developing processors for internal use. These three major technology companies plus Apple, Microsoft, and Qualcomm account for over 40% of Nvidia's revenue.$Alphabet-A (GOOGL.US)$, $Microsoft (MSFT.US)$ and $Amazon (AMZN.US)$Apple$Oracle (ORCL.US)$

Microsoft and Qualcomm

All of these factors will undoubtedly impact Nvidia's future.

Editor/Emily

The translation is provided by third-party software.


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