Thirty years ago, the growth curve of the American and global economies was forever changed by the advent of the Internet. While there have been countless next-big-thing trends and critically acclaimed innovations that have tried to follow in its footsteps, none have come close to what the Internet has done for businesses – yet.
The rise of artificial intelligence (AI) is seen by some experts as the most significant step forward in innovation since the internet became mainstream. When I discuss “AI,” I am talking about the use of software and systems to perform tasks that would normally be performed or controlled by humans. Most importantly, these software and systems are given the means to learn and evolve over time without human intervention, opening up endless possibilities across virtually all sectors and industries.
How big is the global AI opportunity? Last year, PwC researchers released a report (“PwC’s Global Artificial Intelligence Study: Exploiting the AI Revolution”) that estimated that AI would add $15.7 trillion to the global economy by the turn of the century. This outlandish figure would be achieved through a combination of increased productivity ($6.6 trillion) and consumption side effects ($9.1 trillion).
Wall Street and investors won’t ignore such huge numbers, and that’s why AI is huge Nvidia (NASDAQ: NVDA) has been virtually unstoppable since the start of 2023.
On paper, AI titan Nvidia has been flawless
In just over 17 months, Nvidia shares have risen more than 700% to reach a market value of more than $2.6 trillion. The company briefly surpassed last week Apple to become the second-largest publicly traded company in the US, and on Friday, June 7, after the closing bell, Nvidia completed a 10-for-1 stock split. This is the second stock split since July 2021.
Although Nvidia has multiple operating segments, its rapid growth is entirely due to sales of high-performance graphics processing units (GPUs) used in AI-accelerated data centers.
Nvidia’s H100 GPU has become the top choice for companies looking to train large language models and run generative AI solutions in their high-compute data centers. According to technology and consulting firm Jon Peddie Research, Nvidia achieved an 88% share of the AI GPU market in the first quarter.
Total dominance in the hottest innovation since the internet went mainstream has its benefits. With demand for the company’s GPUs far outstripping supply — even the company’s next-generation Blackwell chip will be sold out well into 2025, according to some Wall Street analysts — Nvidia has been able to significantly raise its prices and expand its margins can enlarge. As of April 28 (the close of Nvidia’s first fiscal quarter), the company’s gross margin was an almost unbelievable 78.4%.
Nvidia clearly benefits from its first mover advantages and the fact that it is a leading global chip manufacturing company Taiwanese semiconductor manufacturing has increased its chip-on-wafer-on-substrate capacity so Nvidia can gradually sell more of its AI-accelerating chips.
But while Nvidia has been effectively flawless on paper, it is fighting an uphill battle against history, which suggests it will ultimately fall by at least 50%, if not more.
Over the past thirty years, history has also been spotless when it comes to next-big-thing innovations
As I mentioned before, there has been no shortage of the next big trends, technologies, and innovations expected to be the best in sliced bread. Many of these trends have had one or two leading stocks take off to the sky.
The problem is that all these innovations share a common trend: a bubble burst. Both professional and ordinary investors have a habit of overestimating the adoption and/or usefulness of new technologies. As a result, these vibrant innovations and trends are effectively set up for failure from the start.
Do not you believe me? Let’s take a walk down memory lane…
-
Cisco systems And Amazon were widely seen as leaders of the dot-com revolution. When the dot-com bubble burst, Cisco and Amazon lost about 90% of their respective values, compared to their pre-dot-com bubble all-time highs. While the Internet, network infrastructure and e-commerce have been enormously successful, these innovations all took time to mature.
-
Genome decoding companies Celera and Human Genome Sciences burst into existence in the late 1990s, delivering eye-popping profits for investors with the promise of unlocking the secrets of the human genome at a lower cost. But again, the technology was neither cheap enough nor ready for mainstream use. Both companies would eventually plummet from their all-time highs before being acquired.
-
3D printing stocks such as 3D systems And Stratasys were extremely popular from 2011 to 2013, with the expectation that 3D printing systems would become a hot item for consumers. Unfortunately, this consumer element failed to materialize, causing 3D Systems and Stratasys to lose nearly 95% of their value.
-
Blockchain technology was another hot-button innovation that was expected to take Wall Street by storm in the mid-2010s and revolutionize everything from banking to supply chain tracking. But after many years, blockchain still has minimal use in the real world. Because cryptocurrencies and blockchain often go hand in hand, Coinbase worldwideand the nearly 90% decline it endured are an example of another trend that burst the bubble.
-
Electric vehicles (EVs) were expected to make internal combustion engine vehicles a thing of the past. Although market leader Tesla is profitable, demand for electric cars has declined significantly as consumers have become skeptical of the current charging infrastructure landscape. Tesla shares have fallen as much as 75% from their peak.
This list goes on and on, but I’m going to spare you the entire catalog of leading companies that are seemingly can’t-miss innovations that end up losing between 50% and 99% of their value.
At no point in the last thirty years has there been a next-big-thing trend that avoided a bubble-bursting event. While Nvidia is impeccable on paper, its history has an even longer track record of not getting things wrong.
If this isn’t enough, Nvidia will face a major increase in external and internal competition in the current and next calendar year. Both Intel And Advanced micro devices introduce AI GPUs designed to target Nvidia’s H100 GPU in high-compute data centers. Even if Nvidia’s chips maintain a computing advantage, the mere presence of these competing GPUs will reduce the scarcity that allows Nvidia to jack up the price of its hardware.
Additionally, Nvidia’s four largest customers, which account for about 40% of net revenue, are developing GPUs in-house for their AI data centers. Even if these chips are just an addition to the H100 GPUs ordered from Nvidia, this likely signals a spike in confidence in Nvidia’s products.
While it’s impossible to pinpoint a top, the historical data suggests that Nvidia is possibly will lose more than 50% of its value.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $740,886!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Amazon and Intel. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Apple, Cisco Systems, Coinbase Global, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends 3D Systems and Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
Prediction: Artificial Intelligence (AI) Leader Nvidia Will Plunge More Than 50% was originally published by The Motley Fool
