Before last week, not investing in Nvidia stock or cryptocurrency could be considered among the top two missed opportunities for doubling one's wealth. However, on March 8, local time, Nvidia's share price suffered substantial losses. The current "world's most important" stock saw as much as $128.5 billion, equivalent to about 923.4 billion yuan, evaporate overnight—marking the largest one-day drop since May 2023.
For a while, opinions on Nvidia split into two camps: some viewed it as a strong buy, while others saw it as a dangerous sign with ominous implications.
In the realm of investing in Nvidia, the most well-known case is that of the "wooden sister," Ark Investment Management CEO Cathy Wood. As a star fund manager on Wall Street, she purchased Nvidia shares at about $5 in 2014 when most investors still perceived it as a PC gaming chip company.
In 2023, the emergence of ChatGPT catapulted Nvidia's shares, which had been steadily rising, even higher. However, Wood sold her Nvidia shares on the eve of the AI explosion after years of holding onto them. In January 2023, Ark Investment Management (ARKK) liquidated its Nvidia shares, and it's been roughly estimated that Wood's "early exit" cost her nearly 200 million U.S. dollars.
Warren Buffett was even more prescient, warning as early as August 2023 that Nvidia's market value was overinflated. Yet, Nvidia achieved an incredible market capitalization leap from $1 trillion to $2 trillion in just eight months—a feat that took Microsoft two years and six months and Apple about two years to accomplish.
It's estimated that if an investor had bought Nvidia stock when GPT-4 was released, they would have seen a 359% return. Even those who invested a bit later, in January of this year, would have gained 171% within just three months. However, those who bought the stock more recently might have needed a strong stomach.
On March 8, local time, the three major U.S. stock indexes experienced a high followed by a drop, with Nvidia plunging 5.55%, ending seven consecutive gains. This marked the largest single-day decline since May 2023, with a total market value of 2.19 trillion U.S. dollars.
To some extent, this drop seemed to validate Wood's prediction made on Thursday. In a letter to shareholders, she expressed concern over Nvidia's surge, stating, "If software revenues do not explode, then it will not be able to justify Nvidia's excessive construction of GPU capacity. If Nvidia's customers temporarily halt spending in this area, coupled with the fact that Nvidia has to make adjustments for excess inventory, we would not be surprised."
Nvidia's decline was also somewhat in line with the collective downturn of the semiconductor sector on the same day. Arm Holdings fell more than 6.6%, Broadcom dropped about 7.0%, and Nano Semiconductor declined more than 9.8%.
Like its investors, Nvidia has capitalized on various market opportunities. In its early years, Nvidia's GPUs supported the burgeoning gaming industry. During the cryptocurrency "mining wave" in 2018, Nvidia became a key "tool," reaping significant profits and reaching a then-record high stock price. However, the subsequent burst of the cryptocurrency bubble led to a temporary drop in Nvidia's stock price.
By 2023, Nvidia was once again in the spotlight—this time due to generative AI. From ChatGPT to other advancements, humanity's march towards general artificial intelligence has been underpinned by Nvidia's infrastructure, from which the company has profited significantly. It is reported that Nvidia currently holds over 80% of the AI computing market and is the primary supplier for tech giants such as Amazon, Meta, Microsoft, and Google.
However, after a period of monopoly, challengers are on the rise. AMD, with its chip MI300X and Nvidia's H100, offers a different set of parameters and a lower price point, which could potentially draw users away from Nvidia's oversupply and high-priced AI chips. Additionally, AI chip startup Groq is an emerging force, with its chips reportedly offering 10 times the inference speed of Nvidia GPUs at one-tenth of the cost, though experts believe it may not be easy for these chips to completely replace GPUs.
Chinese company Huawei is also considered a "rival" by Nvidia. According to reference news reported on February 24, for the first time, Nvidia identified Huawei as "the biggest competitor" in its submission to the U.S. Securities and Exchange Commission. The report indicates that Nvidia sees Huawei as a competitor in the supply of graphics processors (GPUs), central processing units (CPUs), and other chips for AI.
Not only are there competitors looking to challenge Nvidia, but also its customers. It is reported that OpenAI's founder and CEO, Sam Altman, is raising up to $7 billion from the Middle East to support one of OpenAI's semiconductor programs. With $7 billion, one could purchase four Nvidias, a sum that exceeds the size of the global semiconductor industry by more than 13 times last year.
While Nvidia remains a dominant player with a head start, its competitive moat is not unbreakable. The company faces emerging competition and must navigate a market where even its customers are looking to expand their own capabilities.
