I know it sounds stupid these days to question anything about Nvidia. After all, it is THE most admired, respected and most powerful chip company in the world! Nothing else is even close to it in this sense. The demand for its chips is huge and increasing. INSATIABLE is probably the only word that comes to my mind when thinking about the supply and demand for it.
Unsurprisingly, it is at its all time high level at the moment. Nevertheless, I become more and more worried about its future. Technically, it is showing a huge and long-term negative divergence, which is a big warning sign for any stock. Look at its weekly chart below: the momentum indicator MACD keeps moving lower although its share price keeps moving up. At some point, one of them has to give: either MACD starts to move up along with it as well to catch up or the stock price has to come down. Given this is a weekly chart, it will take months to manifest the final outcome.
It is not only me who start to be worried about the long-term prospect for Nvidia. See below a note from an investor master:
Nvidia is today’s Cisco, at least in terms of share-price performance and producing the technology/hardware critical to THIS information revolution (its chips). But last week a Chinese firm named DeepSeek released not one but TWO new AI models that have disrupted the entire AI industry.
The models, called DeepSeek V3 and DeepSeek 1, are supposed to be better and cheaper than competitors like Claude 3.5, GPT 4o, and Open AI’s OI. Importantly, DeepSeek is also ‘Open Source’, That means you don’t have to pay the company a license fee to use it and the source code is, well, free.
But what do ‘better’ and ‘cheaper’ mean?
What does this mean to company’s like Nvidia whose share price is based on the belief that the world need more of its chips? And what does it mean to the companies that have spent billions of dollars on Nvidia’s chips (Amazon, Microsoft, Meta, Google etc.)?
Have those companies overspent on chips they didn’t need?
And are they now overvalued based on business models that have been severely undercut by China’s new, emerging, open source start up?
That’s the $18 trillion question!
When Chat GPT was first introduced to the world in early October of 2022, the total market cap of US stocks was $36.46 trillion. Today, it’s $52.88. That’s an increase of about $16.5 trillion in market value which you can chalk up to the AI hype, and lately, the hype around data centers AND the energy they will need (nuclear, natural gas, or anything that generates reliable electricity).
Is ALL of that at risk now that this little Chinese company proves you don’t need as many chips to build an AI that is better and faster than the models American companies have spent billions developing? That’s what we’re about to find out!
Just as a reference, here is what has happened to Cisco mentioned above.
Chip makers, data centers, software, hardware, energy—ALL of it is subject to being blindsided by game-changing innovation, no matter how deep and wide the competitive moat appears to be for any given company. Just ask Cisco Systems…
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Cisco built networking equipment in the late 1990s and early 2000s. That equipment was vital to the infrastructure of the Internet. Whatever the Internet was going to be or become, it would need Cisco’s hardware to get there.
The result, for shareholders, was that Cisco, for a brief time, became the most valuable company in the world. It peaked, then crashed, giving up almost all of the gains it racked up between 1998 and March of 2000.
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