March 27, 2024
Cathie Wood Warns of Nvidia's AI Boom Growth Concerns
AI

Cathie Wood Warns of Nvidia’s AI Boom Growth Concerns

Cathie Wood, the tech evangelist and CEO of Ark Invest, has raised concerns about the future growth prospects of Nvidia, drawing parallels between its current stock surge and Cisco’s trajectory during the dot-com bubble. In a shareholder letter on Thursday, Wood likened Nvidia’s current success in selling graphics chips for artificial intelligence (AI) development to Cisco’s prominence in network hardware during the internet boom of the early 1990s.

Wood highlighted the striking similarities between the two periods, noting that Cisco’s stock surged 31 times in the 3.5 years leading up to March 1994. However, it then experienced a 51% decline over the next four months due to recession fears and increased competition. Although Cisco eventually rebounded and reached a 71-fold increase by the peak of the internet bubble in March 2000, it subsequently crashed about 90%, never returning to its dot-com highs.

Drawing a parallel to the present, Wood asserted, “Today, Nvidia is that company.” She pointed out that Nvidia’s stock has skyrocketed 117-fold in the nine years since February 2015 and 23 times since October 2018, emphasizing the rapid growth in the wake of the crypto winter, during which chip sales suffered, causing Nvidia stock to plunge 56% in three months.

Wood’s central argument revolves around the notion that, much like Cisco’s pivotal role in the internet revolution, Nvidia has become the defining company of the AI era. However, she cautioned that such companies, central to a new technological paradigm, often experience dramatic stock price swings.

Despite Nvidia’s recent growth fueled by high demand for its chips from companies like Tesla and Oracle, Wood expressed concerns that customers might end up with more chips than needed due to the rush. She noted that Nvidia is guiding towards a growth slowdown in the current quarter, and the wait time for its chips has diminished from up to 11 months to as little as three months, indicating improved supply.

Wood raised the possibility of a pause in spending, especially if there isn’t a substantial increase in software revenue to justify the expanded GPU capacity. She also pointed out that Nvidia’s customers, such as cloud service providers and companies like Tesla, are developing their own AI chips, potentially intensifying competition.

Acknowledging that her perspective indicates a diminishing shine on Nvidia amid slowing growth, reduced spending, and heightened competition, Wood emphasized the unpredictability of the future, stating, “Anything is possible.”

Wood’s cautionary stance on Nvidia has been evident in recent months, as she revealed in February that Ark was reducing its exposure to the stock due to concerns that “expectations could be getting ahead of themselves.” While Nvidia’s stock has surged almost 90% this year, pushing its market capitalization above $2 trillion, Wood’s Ark Invest holds only $64 million of Nvidia across its funds. This places Nvidia as the 41st largest holding out of nearly 200, with Coinbase and Tesla ranking higher among its substantial holdings.

Image by Flickr

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