Nvidia shareholders have been reminded that even the strongest stocks don’t rise all the time, with the world’s third-most valuable company falling into a technical correction after suffering a double-digit percentage decline.
The sell-off gathered pace on Tuesday amid increased talk of competition from Intel, which says its upcoming Gaudi 3 chip will be priced “a lot lower” than Nvidia’s AI (artificial intelligence) chips.
Google, which hopes to lessen its dependence on Nvidia for processing power, is also joining the chip race with its own Axion processor. Competition is arguably a bigger issue for Nvidia than valuation. For all the talk of Nvidia’s stratospheric share price gains, Bank of America notes that its surging revenues mean it is cheaper today (trading on 35 times estimated earnings) than when ChatGPT was launched in late 2022 (44 times earnings).
However, with Nvidia having an estimated 80 per cent share of the AI chip market, increased competition is inevitable. Add in enormous profit margins, and it “just begs for competitors to come in”, as one analyst put it recently.
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Still, recent weakness should not be overstated, given that Nvidia shares are still up slightly over the last month and by 85 per cent in 2024. The battle for AI chip supremacy is heating up, but Nvidia maintains a strong technological edge over its competitors.
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