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Nvidia “seems to be fizzing” because its semiconductor market share is not sustainable, Rob Arnott told CNBC.
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Competitors like AMD and Intel are likely to step up their efforts to compete with the chipmaker.
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Nvidia reported another big earnings quarter on Wednesday, beating both revenue and earnings expectations.
Nvidia has once again surpassed Wall Street estimates and its latest earnings results have set off a chain reaction of price target increases.
But among the chorus of positive excitement, one well-known investor is skeptical about the chipmaker’s long-term prospects.
According to Rob Arnott, founder of Research Affiliates, Nvidia’s market success is based on the idea that it will continue to dominate the semiconductor industry in the future.
“It seems vibrant,” he told CNBC on Thursday. “The price-to-sales ratio is astronomical, and it’s astronomical because their profit margins are absolutely gigantic.”
He continued, “So AMD, Intel and Taiwan Semi are going to sit back and say, ‘Oh, you can keep your 50+ profit margins. You can keep your 90+ market share and super chips. Don’t worry about it.’ No, they’re all going to play.”
Competition among semiconductor players will be good news for artificial intelligence consumers, Arnott said, because it ensures that AI’s power increases as costs fall.
It’s fair to say that Nvidia currently leads the chipmakers by a wide margin. Citing that demand still exceeds supply, the company has already announced second-quarter guidance that exceeds expectations.
The company’s rise is because developments in the field of AI have created the need for advanced hardware. But this also applies to other semiconductor manufacturers: according to Nvidia supplier TSMC, the sector is facing a turnover growth of 10%.
Additionally, a tech race to implement AI into their products means multiple chipmakers will be in high demand, based on their strengths, Bank of America wrote this month. Among the examples cited were ARM – a blueprint provider for on-device AI – as well as Broadcom and AMD.
Read the original article on Business Insider
