AI Revolution: Nvidia’s Stock Story and Future Challenges
The internet reshaped corporate America around 30 years ago, marking a significant change in business operations. Although it took a while for companies to grasp the full potential of online commerce, its impact has been undeniable. Investors on Wall Street have eagerly anticipated a similar breakthrough since the mid-1990s, and it seems artificial intelligence (AI) may deliver that promise.
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AI technology has the unique ability to enhance its performance over time, learning and adapting without human help. This potential explains why analysts at PwC project AI could add $15.7 trillion to the global economy by 2030.
Nvidia’s Dramatic Valuation Surge: A Tech Leader Emerges
Nvidia has emerged as a clear winner in the AI boom. At the end of 2022, the company was valued at $360 billion. Today, its valuation has soared to an impressive $3.44 trillion, positioning it as one of the most crucial tech stocks in the market.
The company’s growth has been largely driven by its highly sought-after AI graphics processing units (GPUs). These GPUs power enterprise data centers, enabling rapid decision-making. Currently, demand for Nvidia’s H100 GPU, known as the “Hopper,” is so high that orders are backlogged, while CEO Jensen Huang has described demand for the upcoming Blackwell GPU as “insane.”
According to supply and demand principles, when demand surpasses supply, prices tend to rise. Nvidia’s Hopper chip ranges from $30,000 to $40,000—a premium of 100% to 300% over competing AI GPUs. This pricing power has helped Nvidia achieve a remarkable adjusted gross margin exceeding 75% as of the quarter ending July 28.
Nvidia’s success can also be attributed to its CUDA software platform. Developers utilize CUDA to create large language models while maximizing the computing potential of Nvidia’s GPUs, keeping customers engaged within its ecosystem.
Additionally, Nvidia has secured significant contracts with top Wall Street players. As of this year, around 40% of Nvidia’s net sales came from giants like Microsoft, Meta Platforms, Amazon, and Alphabet. Such endorsements are invaluable and signal confidence in Nvidia’s products for AI-powered data centers.
Fading Competitive Edge: Nvidia Faces New Challenges in 2025
Nvidia currently holds a strong position in computing power with its Hopper and Blackwell GPUs, which should maintain their competitive edge in AI-focused data centers for some time. However, a significant change looms ahead for 2025: the end of AI-GPU scarcity.
The demand for AI chips has outstripped supply, leading to remarkable pricing power for Nvidia. Yet, leading chip manufacturer Taiwan Semiconductor Manufacturing (NYSE: TSM) is ramping up its chip-on-wafer-on-substrate (CoWoS) capacity. Recent reports suggest that this capacity could reach 80,000 wafers per month—potentially a year ahead of schedule—yielding more high-powered GPUs for the market.
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Moreover, Nvidia is no longer the sole player in the AI GPU market. Advanced Micro Devices is increasing production of its MI300X GPUs and preparing to launch the MI325X chip. As competition intensifies, the scarcity of AI GPUs is likely to diminish.
Additionally, the tech giants that contribute to Nvidia’s sales are now creating their own AI GPUs for in-house use. Even if these chips are less powerful than Nvidia’s, they offer a cost-effective alternative. Over the next few years, firms like Microsoft, Meta, Amazon, and Alphabet could increasingly opt for their own AI solutions instead of Nvidia’s, challenging its pricing power.
This brewing storm in 2025 could lead to an abundance of AI GPUs, resulting in a shift away from Nvidia’s high pricing strategies, which have allowed it to boost its gross margins. As this edge fades, sustaining Nvidia’s recent stock surge may prove difficult.
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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, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also on The Motley Fool’s board. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. It also recommends options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
