Urgent Warning: Nvidia Stock Could Plunge 20% if Big Tech Signals this Critical Shift, Fund Manager Alerts
Nvidia has been benefiting from high demand and limited supply for its chips, resulting in gross profit margins exceeding 70%. The company’s fiscal second-quarter earnings surpassed market expectations, although the stock dipped in extended trading as investors sought even higher gains. Looking forward, a key metric to watch is capital expenditure (capex) by major tech firms, or “hyperscalers,” like Microsoft, Google, and Amazon, who are significant buyers of Nvidia’s products, particularly for AI development.
These companies have reported substantial increases in their June quarter capex, with Microsoft’s rising over 77% year-on-year to $19 billion and Google’s parent Alphabet increasing over 90% compared to the previous year. This trend in high AI-related capex is expected to continue, maintaining Nvidia’s current margin levels, according to Josh Koren of Musketeer Capital Partners. However, Koren warns that a decline in capex guidance could signal an erosion of Nvidia’s pricing power and margins, potentially within the next two or three quarters, which might lead to a 20% drop in Nvidia’s share price.
Despite increased competition from AMD, analysts remain optimistic about Nvidia’s market position. There are currently 18 “strong buy” and 37 “buy” ratings on the stock. Yang Wang, a senior research analyst at Counterpoint Research, estimates that Nvidia will capture the majority of cloud companies’ capex, expected to total around $700 billion over the next two and a half years. This forecast suggests a robust outlook for Nvidia, as the company is anticipated to maintain its dominance in the market.
In summary, Nvidia’s near-term prospects look positive, fueled by heavy AI investment from major tech firms. However, investors should keep a close eye on capex trends as a potential early indicator of shifts in the company’s financial performance.
Original Story https://www.cnbc.com/2024/08/29/nvidia-stock-could-plunge-20percent-if-big-tech-starts-to-signal-this-one-change-fund-manager-says.html
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