Over the past two years, no trend has caused more buzz on Wall Street than the rise of artificial intelligence (AI). The ability of AI-powered software and systems to become more proficient at their assigned tasks, and to learn new skills over time without the aid of human intervention, gives this technology seemingly limitless long-term potential.
In Determine the pricePwC analysts estimate that AI would increase global gross domestic product (GDP) by 26% ($15.7 trillion) by the turn of the century. A rise of this magnitude means that companies up and down the AI landscape could be winners.
Image source: Getty Images.
However, no company has benefited more directly from the rise of AI than the semiconductor giant Nvidia (NASDAQ: NVDA). In less than two years, Nvidia has gone from a $360 billion company of some significance in the technology sector to Wall Street’s most valuable publicly traded company ($3.64 trillion market cap).
Given the critical role Nvidia plays in the AI revolution, Wall Street and investors are focused on November 20, when the company will raise its proverbial hood and reveal its operating results for the quarter ending October 27.
While the optimism surrounding Nvidia is thick enough to cut with a knife, I can name a half-dozen reasons why Nvidia stock will hit the wall on November 20.
Nvidia’s operational disaster was textbook
Before I get into the details of why Nvidia’s stock may struggle following the release of its fiscal third-quarter results, I want to provide some background explaining why Nvidia has added $3.3 trillion in market value in less than two years.
The core of Nvidia’s growth is its hardware. Orders for the company’s H100 graphics processing unit (GPU), commonly referred to as the “Hopper”, and its successor Blackwell GPU architecture, are being delayed. Companies are eager to gain first-mover advantages, and Nvidia’s AI GPUs offer superior computing capabilities.
In addition to strong demand, Nvidia boasts stratospheric pricing for its hardware. While competing AI GPUs are priced in the $10,000 to $15,000 range, the Hopper consistently commands a price of $30,000 to $40,000 per chip. Companies that willingly paid a premium for Nvidia’s solutions saw gross margins increase as high as 78%.
I’d be remiss if I didn’t also mention the key role Nvidia’s CUDA software platform has played in driving revenue growth. CUDA is the toolkit developers use to build large language models and maximize the computing potential of their GPUs. In other words, CUDA is the lure that keeps Nvidia’s customers within the umbrella of products and services.
With truly staggering revenue growth – $27 billion in fiscal 2023 to an estimated $180 billion in fiscal 2026 – it’s not surprising that investors are flooding in.
Still, there are half a dozen reasons to believe the perfect storm is brewing for Nvidia, which needs nothing short of flawless execution to keep its near-parabolic move higher.
Image source: Getty Images.
Opinion: The party ends for Nvidia on November 20
When Nvidia reports its third-quarter operating results in four days, there’s a good chance it will beat consensus revenue and profit forecasts. Over the past seven quarters, Nvidia has easily exceeded earnings per share (EPS) expectations. But simply exceeding what was expected from the company in the October quarter likely won’t be enough to support additional upside potential, for several reasons.
For starters, external competition has officially arrived. After Nvidia secures an estimated 98% of GPU shipments to data centers in 2022 and 2023, based on a TechInsights survey, the company will likely cede some of this market share to Advanced micro devices this year. AMD is rapidly ramping up production of its MI300X AI GPU and recently introduced the MI325X, which should go into production before the end of the year. With Nvidia’s GPUs lagging behind and companies eager to gain first-mover advantages, it wouldn’t be surprising if companies adopted AMD’s AI hardware instead.
However, there could be a bigger threat to Nvidia internal competition. Many of its top customers by net sales, including Microsoft, Metaplatforms, AmazonAnd Alphabetare developing AI chips internally for use in their data centers. The cost of developing/manufacturing these in-house chips, combined with their ease of access, could make them more favorable than Nvidia’s hardware in the coming quarters.
Nvidia’s gross margin expansion will likely prove unsustainable as GPU shortages ease. NVDA gross profit margin data (quarterly) according to YCharts.
To add to this second point, the scarcity of AI GPUs has played a crucial role in increasing Nvidia’s pricing power. As more chips become available and scarcity decreases, Nvidia’s pricing power and gross margin will be negatively affected.
The third issue to consider is that Nvidia is still limited by its supply chain. Taiwanese semiconductor manufacturingwhich produces chips for Nvidia, wants to increase its monthly chip-on-wafer-on-substrate (CoWoS) production capacity to 80,000 wafers. CoWoS is necessary for packaging high-bandwidth memory in AI-accelerated data centers. Being at the mercy of its suppliers prevents Nvidia from meeting all its orders and could cause it to lose valuable data center space to external and internal competitors.
Fourth, the export rules offer little reason to cheer. In 2022, US regulators restricted Nvidia’s ability to export its AI GPUs to China, the world’s second-largest economy by GDP. The following year, Nvidia’s watered-down AI chips, the A800 and H800, which were designed specifically for China, were also added to the list of export restrictions. With newly elected President Donald Trump promising to crack down on trade with China, Nvidia’s prospects of making big money exporting AI hardware to China are rapidly diminishing.
Insider sales have increased in 2024. Data of NVDA shares sold by insiders according to YCharts.
Insider trading activity is the fifth piece of the perfect storm for November 20. Over the past 47 months, not a single executive or director has purchased a single share of Nvidia stock on the open market. While there are plenty of reasons to sell stock, not all of which are harmful, the only reason to buy stock in a company is if you think the price is going up. The actions of Nvidia executives and directors make it clear that Nvidia stock is not considered a good value.
The sixth and final reason I’m looking for Nvidia stock to hit a wall on November 20 is history. Over the past thirty years, investors have consistently overestimated how quickly a new technology or innovation will gain utility and/or adoption. This leads to lofty growth expectations possibly (key word!) come up short.
Despite ample demand for the Hopper and Blackwell, Nvidia’s customers lack well-defined plans to monetize their AI investments. In other words, companies buy, but there is no clear use case. All technologies take time to mature, and artificial intelligence is unlikely to be the exception to the unwritten rule. In my opinion, this puts Nvidia stock in a precarious position on November 20.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet, Amazon and Meta Platforms. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
