Nvidia -- NVDA -- Opinion -- Source -- June 6, 2024

Locator: 48072TECH.

Before we get to the commentary, first this, also from twitter:

Link here from twitter:

With $NVDA becoming the second most valuable company in the world yesterday, I thought it worthwhile to lay out my thoughts both near-term and longer-term depending on your time horizon.

My belief is that over the next 3-4 years, Nvidia revenues are likely to roughly triple from current levels with the stock roughly doubling. However, before year-end we may be near a digestion phase for the amounts spent on AI over the past 1 ½ years since the launch of ChatGPT in late 2022.

In this regard, Sequoia, which is a prominent VC investor in the AI space including a lead investor in the seed round for $NVDA in 1993, did a presentation recently in March. Sequoia estimated that the AI industry spent $50B on the NVidia chips used to train advanced AI models in 2023 but brought in only $3B in revenue. I believe a slowdown in AI spending from the torrid rates seen over the past year will be healthy as companies figure out where this spend gets the return on investment necessary.

Large software vendors that just reported the April quarter such as $CRM, $MDB, $SNOW, $WDAY were optimistic on the benefits of AI to their businesses. However, future expectations were cut despite AI benefits as the economy slows, companies cut back on employees due to greater efficiency and the increased spend on AI is coming out of other budgets.

Even during the buildout of the internet, $CSCO, which became the most valuable company in the world in 2000, went through periods of severe stock declines as concerns rose about internet spend digestion. Cisco’s stock saw declines of 26% in late 1995, 38% in early 1997 and 37% in late 1998 as revenue growth rates while still hugely positive either declined or plateaued. Despite these intra-year declines, the stock was up during each of those years in total and increased ~4000% to its peak in 2000 from the end of 1994.

For perspective, Cisco, the leading enabler of the internet infrastructure buildout, since the end of 1994 (the launch of internet web browser Netscape Navigator) saw its revenues increase over 15x from $434M (Oct qtr of 1994) to $6.7B (Jan qtr of 2001) without ever having a sequentially down quarter. Nvidia by comparison since the end of 2022 (the launch of ChatGPT) has seen revenues increase by “only” over 4x over 1 ½ years from $5.9B (Oct qtr of 2022) to $26.0B (April qtr of 2024). AI spending driven by the biggest companies in the world is healthier today than the early spend on the internet when internet advertising models were unproven.

Obviously at some point an actual contraction in AI spend and stock prices is likely as was the case with the internet spend from its peak in 2000. Cisco’s revenues declined 36% in six months to $4.3B (July qtr of 2001) before starting to grow again while the Nasdaq declined 78% from peak to trough over 2 ½ years (and Cisco’s stock declined 89%.) However, I believe we are years away from that ultimate AI peak build out occurring but we will not know that until time passes much like back during the internet buildout.

Much could be said, but I'm sure we all have our own thoughts.