The tech giant Nvidia has experienced a surprising drop in its shares, coinciding with the “Black Monday” that affected several tech companies. The week began with a significant decline in global markets, with a notable impact in Japan. However, what has generated greater concern among investors is a major setback in the chip manufacturing company, raising doubts about its future and the position of artificial intelligence (AI) in the market. Are we witnessing the beginning of a decline for Nvidia, or could new competitors emerge?
Nvidia is not only facing issues in the stock market; it is also under scrutiny from various governmental organizations. From the United States Congress, a group of progressive senators has increased pressure on the Department of Justice to investigate the company for possible monopolistic practices. Nvidia controls a substantial portion of the chip market, with an 80% share of the global GPU market and a 98% dominance in data centers, essential for AI development. These figures have led to accusations of price-fixing, an illegal practice in many jurisdictions.
Problems and Their Impact
Despite a promising start to the year, Nvidia has encountered difficulties in its production line. The design flaw in the Blackwell chips has forced the company to delay its launch, affecting the revenue forecasted for the third quarter, now projected for early 2025. According to reports from The Information, Nvidia has informed its major clients, such as Microsoft, about the delivery delays, creating uncertainty in the market.
This setback has led to a significant drop in Nvidia’s shares, which plummeted around 23%. This decline adds to the overall loss of value among major tech companies like Amazon, Apple, Meta, Alphabet, Microsoft, and Tesla, which collectively saw a reduction of more than one trillion dollars in their market capitalization this Monday.
Skepticism About the Sustainability of the AI Market
The investment fund Elliott Management has expressed skepticism about the sustainability of the AI boom, particularly regarding Nvidia’s shares. In a letter to its investors, viewed by the Financial Times, the fund labeled AI technology as "overvalued" and warned that Nvidia’s surge could be a bubble. Elliott pointed out that many of the promoted AI applications might not be profitable, efficient, or reliable, and the current enthusiasm might not be sustainable in the long run.
This analysis comes at a time when Nvidia’s shares, after a meteoric rise, have fallen more than 20% since the end of June. Despite its previous status as the world’s largest company, with a market capitalization exceeding $3.3 trillion, Nvidia’s future now seems less certain. Massive investments by tech giants like Microsoft, Meta, and Amazon in AI infrastructure, although significant, have also led these players to develop their own competing chips, increasing market competition.
Future Outlook
Despite the current issues, Nvidia’s CEO, Jensen Huang, has reaffirmed the company’s long-term vision, emphasizing its commitment to innovation and annual chip renewal. At the end of August, Nvidia will present its quarterly results, and a $28 billion increase in revenue is expected, which could restore confidence in the company. However, Elliott Management’s warning of a possible bubble in tech stocks, particularly in the AI sector, has raised doubts. According to the fund’s letter, AI has yet to deliver the promised productivity gains, and the current bubble could burst if Nvidia reports poor financial results.
This scenario places Nvidia in an uncertain position, where market expectations and the reality of tech production are delicately balanced. The company’s future, and that of the AI sector in general, will largely depend on its ability to overcome these challenges and maintain investor confidence.
