NVIDIA Corporation (NASDAQ: NVDA) is the one U.S. technology company taking over the world in AI and other technology trends. The one problem with history, particularly financial and economic history, is that nothing lasts forever. Any single company still has “single stock risk” associated with it that makes it riskier than the entire stock market as a whole.
Before any investor worries about this being a call of the end of an era, let’s just hold at least some sanity and solidarity for a moment. NVIDIA isn’t likely to die on the vine here. It has a market cap of more than $4 trillion and it is the de facto leader of AI and future technologies around datacenter operations.
Wall Street has been so enamored with NVIDIA for so long that it seems like any and every hurdle has become just a mere bump in the road that ends up being remedied by even higher share prices. That just doesn’t come with any guarantees or assurances.
So why a word of caution?
Citigroup issued a very slight downgrade-lite on NVIDIA this week. The stock was already down about 8% from its peak in August. Even then, NVIDIA’s stock was still last seen up 31% year-to-date and up an even more impressive 71% from a year ago — and up about 32,000% over the last decade (according to Finviz).
Citi analyst Atif Malik still has a Buy rating on NVIDIA and that rating doesn’t seem to be going anywhere. The downgrade-lite portion of the call was his price target down to $200 from $210.
One issue that has exacerbated the drop for NVIDIA is the Broadcom Corporation (NASDAQ: AVGO) earnings report that boosted its own stock so much. Broadcom has telegraphed that its own clients are using its own hardware now at the expense of NVIDIA’ GPUs in the future. NVIDIA has roughly 90% of market share in its AI chips.
Citi’s channel checks and estimates put about $12 billion in potential sales risk for Nvidia. It’s a lot, but keep in mind that Nvidia’s trailing 12-month revenue was about $165 billion. And keep in mind that the estimates do not include Chinese GPUY shipments restarting as well. For that matter, does anyone know how to properly model the Chinese order potential and/or new risks to ongoing risks?
One additional risk for NVIDIA is that its customers are spending so much already that it’s a no-brainer to invest in developing their own in-house or semi-custom processors to cut costs. Some customers are even dipping down into lower-cost suppliers to help on a “it’s good enough” basis.
Citi’s Malik has remained that NVIDIA’s super-dominance would fade over time. Broadcom could capture 30% of the share per one estimate from Citi, and Advance Micro Devices, Inc. (NASDAQ: AMD) and other developers may even have 10% market share to take.
Could it be that one day even the (formerly) mighty Intel Corporation (NASDAQ: INTC) could even have some room to grow again?
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