There’s a simple investment premise that has supported the world-beating growth of Nvidia (NASDAQ:NVDA) over the past few years: its chips are in a league of their own.
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Trade NVDA with leverageThe mad dash to build out the AI ecosystem has come to rely fundamentally on Nvidia and its hardware. That explains the company’s rapidly rising revenues ($68 billion in its last quarter, up 73% year-over-year) and success in safeguarding its enviable margins (75% GAAP gross margin).
With hyperscalers expected to pour hundreds of billions into capex this year, the backdrop still looks highly supportive. CEO Jensen Huang has even suggested Nvidia’s most advanced GPUs could generate a combined $1 trillion in revenue through 2027, underscoring just how large the opportunity may be.
Meanwhile, after a choppy start to the year, NVDA shares have begun to trend higher again in recent weeks, raising the question of whether this move marks the start of another sustained advance or simply a rebound within a more uncertain setup.
One investor, known by the pseudonym Oriental Trader, is taking a more cautious view, pointing to potential risks that could weigh on the broader thesis.
“NVDA’s customer base is highly motivated to seek alternatives, making its market share and margins increasingly vulnerable in the evolving AI landscape,” explains the investor.
Oriental Trader notes that hyperscalers such as Microsoft and Alphabet are actively developing their own chips internally. Meanwhile, some other big names are wading in as well.
That includes the most recent AI powerhouse, Anthropic, which is reportedly looking to pursue its own AI chips. Elon Musk has also made a splash with the Terafab venture, which is seeking to create a one-stop shop for semiconductor production.
The investor is aware that Nvidia’s prowess is based on more than just its GPUs, however, as its CUDA software possesses plenty of technological benefits that make switching difficult. And yet, in an ironic twist, Oriental Trader points out that AI’s incredible advances could undermine this competitive advantage by improving both chip design and software coding.
“Competition is on the way and I don’t see that NVDA will come out of it unscathed,” concludes Oriental Trader, who rates NVDA a Sell. (To watch Oriental Trader’s track record, click here)
That bearish take, however, stands in stark contrast to the broader view on Wall Street. Among analysts, sentiment remains overwhelmingly positive, with 41 Buy ratings, alongside just 1 Hold and 1 Sell, giving NVDA a Strong Buy consensus rating. On top of that, the average 12-month price target of $273.57 suggests potential upside of ~38% from current levels. (See NVDA stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.