“If you build it, they will come.” That was the promise in Field of Dreams. For Nvidia (NASDAQ:NVDA) and the AI ecosystem, the modern version reads differently: if you build it, someone eventually has to pay for it. With Big Tech spending hundreds of billions on AI infrastructure, investors are starting to wonder whether faith alone can keep this trade afloat.
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Nvidia, for its part, keeps doing what it does best – beating analyst expectations across the board. What’s less typical is the market’s response, with the stock sitting about 6% lower since the latest fiscal third-quarter results were released on November 19.
The numbers certainly weren’t the issue. Revenue surged to $57 billion, up 62% year over year, while both GAAP and non-GAAP gross margins came in above 73%. Nvidia also guided for $65 billion in revenue next quarter and flagged further margin expansion.
So where does the story go from here? Investor Johnny Rice isn’t fully convinced the runway is endless.
“It is hard to argue with the eye-popping numbers Nvidia is delivering, but I do question how long its place at the center of the AI boom – and the AI boom itself – can continue,” explains the investor.
Rice points out that AI has yet to prove itself in the real economy, which could cause companies (and their shareholders, in particular) to reconsider the huge spending outlays they are devoting to the AI buildout.
Moreover, the investor cites the recent release of Alphabet’s Gemini 3 as another potential cause for alarm. This newest LLM, received with much aplomb and fanfare, was trained on Alphabet’s own TPU chips. This could signal that Nvidia’s technological moat might not be deep enough to safeguard its place at the head of the class.
“[It] directly challenges the primary narrative driving Nvidia’s success, that its chips are so much more advanced than the competition that it is worth paying a hefty premium for them,” adds Rice.
At some point, Rice worries, Nvidia’s growth trajectory might cool off considerably. If that happens, investors in NVDA could be in trouble.
“In the near term, there are no real signs that (NVDA) will falter. Long term, however, I have my doubts,” sums up Rice. (To watch Johnny Rice’s track record, click here)
Meanwhile, Wall Street remains truly, madly, deeply in love with NVDA. With 39 Buys, 1 Hold, and 1 Sell, NVDA cruises to a Strong Buy consensus rating. The Street’s average 12-month price target of $258.45 suggests the stock could climb another ~48% over the next year. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.