A few major investors have dumped some of their AI holdings, raising fears that a market sell-off is looming. Tech billionaire Peter Thiel’s hedge fund sold its entire stake in Nvidia in the third quarter, as did SoftBank CEO Masayoshi Son, although he parlayed those proceeds into a huge bet on OpenAI.Doubts have sent Nvidia shares down 7.9% so far in November, after rising 1,200% in the past three years. The broader market is down 2.5% this month.
“With each passing quarter, Nvidia’s revenues become more important in terms of clarity about where AI is going and how much spending is happening,” said Brian Stutland, chief investment officer of Nvidia investor Equity Armor Investments.
Despite bubble fears, demand for Nvidia’s chips remains high, with cloud giants including Microsoft investing billions in AI data centers.
The demand for chips is high, but the value is decreasing
Nvidia is likely to report a more than 56% increase in quarterly revenue in the August-October fiscal year to $54.92 billion, according to data compiled by LSEG, a far cry from the triple-digit growth the company has seen for many quarters as it faces tougher comparisons. The company has exceeded expectations over the past twelve quarters, although delta has shrunk.
Nvidia CEO Jensen Huang said last month that the company has $500 billion in bookings for its advanced chips through 2026.
“The old Wall Street saying ‘one stock is not a market brand’ — that would be incorrect here,” said Neil Azous, portfolio manager of the actively managed Monopoly ETF that owns Nvidia stock. “Nvidia has the ability to create a market.”
But Nvidia’s chips are at the center of ‘Big Short’ investor Michael Burry’s bet against the company. Burry, who recently closed his hedge fund, argued that major cloud providers artificially increased revenues by extending the depreciable life of AI computing equipment such as Nvidia’s chips.
Nvidia now updates its chips annually, making older models appear outdated more quickly, even as the resale market booms.
More complex processes, margin pressureFor now, Nvidia is struggling to supply sufficient chips.
While contract chipmaker TSMC is adding advanced packaging capacity to overcome a major bottleneck and plans to continue expanding through 2026, Nvidia is also rolling out more complex and larger systems that bundle graphics processors, central processing units, networking equipment and a range of cooling options.
That, in addition to the continued ramp-up of top-end Blackwell chips and upcoming Rubin processors, has put pressure on margins. Nvidia is expected to report that adjusted gross margin shrank nearly 2 percentage points from the same period last year, to 73.6% in the third quarter. Net income likely grew 53% to $29.54 billion.
Investors are watching to see how major AI deals, including Nvidia’s $100 billion investment in OpenAI and a $5 billion stake in chipmaker Intel, will impact the balance sheet. Nvidia had cash and cash equivalents of $11.64 billion as of July 27.
China is another overhang. Nvidia can’t ship its most advanced chips there under US export restrictions, and Huang has said there are “no active discussions” about selling Blackwell in the market, despite speculation about a possible deal for a scaled-down version.
Nvidia dropped China from its forecast for advanced processors last quarter
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