Semiconductor giant Nvidia (NVDA) was lower today as a leading tech investor said its recent deal with OpenAI reminded him of the dot-com bubble of the early 2000s.
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Concerning Move
Brit James Anderson, who was an early backer of EV maker Tesla (TSLA), e-commerce group Amazon (AMZN) and China’s Tencent (TCEHY), said he was concerned about Nvidia’s recent investment of up to $100 billion in OpenAI.
Under the terms of the deal, OpenAI will pay Nvidia in cash for chips, and Nvidia will invest in OpenAI for non-controlling shares.
Some commentary around the deal has raised parallels with vendor financing, where a company provides financial support to a customer buying its products.
Anderson, now managing partner at independent investment management firm Lingotto said the deal presented more reasons to be concerned about Nvidia than ever before.
Referring to a practice common in the dotcom bubble, when telecom equipment makers lent money to customers, he said: “I have to say the words ‘vendor financing’ do not carry nice reflections to somebody of my age. It’s not quite like what many of the telecom suppliers were up to in 1999-2000 but it has certain rhymes to it. I don’t think it makes me feel entirely comfortable from that point of view.”
Bubble Signs
Overall, Anderson described soaring valuations of AI companies – see below – as ‘disconcerting.’ “Up until the last couple of months or so … what surprised me in one sense is that there wasn’t really much sign of a bubble [in AI],” he told the Financial Times.
What has changed was OpenAI reportedly being in talks about a share sale that would value it at $500 billion, up from $300 billion in April.
Rival Anthropic almost tripled its valuation recently, going from $60 billion in March to $170 billion last month. Nvidia briefly touched a $4.5 trillion market value earlier this week.
“I think one needs to be honest that those sudden increases [in valuation] that people were willing to place on OpenAI, Anthropic and the like were disconcerting,” Anderson said. “That scale of jump and the pace with which it happened did bother me.”
Is NVDA a Good Stock to Buy Now?
On TipRanks, NVDA has a Strong Buy consensus based on 36 Buy, 2 Hold and 1 Sell ratings. Its highest price target is $250. NVDA stock’s consensus price target is $213.35, implying a 14.35% upside.
