Colin’s Note: Nvidia’s been leading the charge of this artificial intelligence rally for well over a year now… but how long can it keep pushing higher before the AI hardware darling hits its peak?
I do expect Nvidia’s value will peak sooner rather than later… But as for when, well, that hinges on the company’s earnings report due to drop later this week.
That will offer crucial insight into the collective investor appetite for driving AI stocks like Nvidia up even higher… and if the demand for its chips is still outpacing Nvidia’s ability to keep up.
Click below to watch or read on for the transcript…
Bleeding Edge subscribers, we’ve got a big week this week.
Few stocks have played a more pivotal role in the tech stock rally than Nvidia (NVDA). But today, I’ll reveal when I expect Nvidia’s value to peak. And it hinges on a report we get from the company later this week.
In the past 12 months alone, Nvidia’s shares have soared more than 200%. Maybe even more impressive than that is how after firmly establishing itself as the gold standard for AI chips, shares of Nvidia have climbed another 80% this year.
Later this week, Nvidia will report its earnings. That will offer a crucial update on investor appetite for driving AI stocks like Nvidia up even higher.
But if you know where to look, all signs point to Nvidia’s only problem being its ability to keep up with demand.
Earlier this month, SK Hynix announced that high-bandwidth memory (HBM) chips were almost sold out through 2025. HBM is a critical component to making Nvidia’s AI data center chips really the best in the world.
The fact that supplies of these critical components are sold out through next year means Nvidia is still facing an unprecedented demand for its AI data center GPUs.
But it’s not just components of Nvidia’s best-selling chips providing clues on how demand will come in. Even utility companies are starting to feel the impact of Nvidia’s rapid growth.
Constellation Energy CEO Joseph Dominguez said the company is experiencing booming demand for artificial intelligence technologies and other digital infrastructure projects.
Traditional utility companies were accustomed to steady, incremental growth. But shares of Constellation Energy have surged 82% this year as investors are starting to recognize that the rising demand for data centers is creating a new revenue opportunity for the utility sector.
Next, we look at the price of copper. There are many contributing factors for the copper price, including increasing demand from China and increased military activities… But copper prices have reached a two-year high this month.
This comes as demand for copper wires from utility companies, which we just discussed, is coming in higher than expected.
Then there’s CoreWeave, a startup backed by Nvidia that offers cloud computing services and is seen as a competitive threat to larger providers like Google, Microsoft, and Amazon.
Last year, the company raised $2.3 billion using Nvidia’s GPUs as collateral for the loan. It’s unheard of. More recently, the company has raised money twice just in the past month to fuel its rising and rapid demand.
The startup has seen its value soar from $7 billion in December to more than $19 billion as Nvidia continues to prioritize shipments of its newest chips to CoreWeave because of its early-stage investment.
All in, we’re witnessing unprecedented demand across the AI hardware landscape. Everything from memory makers to utility companies is seeing unusually high demand because of artificial intelligence.
I expect the market – the stock market and investors – to fully price in this demand by the end of this year, marking the end of the massive outperformance in the AI hardware sector.
But look, that doesn’t mean that the AI investment cycle is over. Far from it. AI hardware and infrastructure stocks will still generate significant revenue. But I expect profit margins to come under fire by early next year as a combination of new competition.
But more importantly, increased amounts of supply will limit their ability to raise and increase prices. It’ll be at this stage we see the rapid expansion of the software phase of AI taking shape.
Remember, it’s going to go hardware, software, and then everywhere.
Currently, tech giants like Google and Microsoft are dominating the headlines on the software side. By the end of this year, new forms of AI software will emerge. All of this requires robust hardware build-out.
And when Nvidia reports earnings later this week, it’ll be clear that demand is still far outpacing Nvidia’s ability to keep up, at least at this point. I’ll be back later this week to recap. Until then, have a great week and I’ll see you soon.