If today’s stock markets have their version of the great wildebeest migration, it is the stampede of the Nvidia bulls. Wall Street is no Serengeti, and Jim Cramer’s high-pitched narration no match for the dulcet tones of Sir David Attenborough. But in other respects investors’ headlong rush into the American chipmaker’s shares has been every bit as enthralling a spectacle.
Galloping sales of Nvidia’s artificial intelligence (AI) processors have lifted its market capitalisation from $350bn at the start of 2023 to $1trn, then $2trn, and then, this summer, $3trn. In June, it overtook Microsoft, an AI-zealous software giant believed to be the biggest buyer of its chips, as the world’s most valuable firm. It proceeded to lose that title—and $900bn in value—amid the recent stock market panic, only to claw back most of its losses in the past few weeks. “How much money have you made over the years betting against Jensen Huang?” Mr Cramer asked rhetorically on his CNBC show recently, referring to Nvidia’s boss. These days, the Nvidia bear appears to be an endangered species. Or, as Sir David might whisper, “Not an Ursus nvidiaensis in sight.”
For every hedge fund that trims its stake in the company, another seems to do the opposite. Among the 74 Wall Street analysts who cover Nvidia and are tracked by Bloomberg, 66 advised buying more of its shares as of late August; none suggested selling. Their average price target for the stock one year from now implied a market value of around $3.5trn. James Anderson, a veteran tech investor who was an early backer, teases that Nvidia could be worth $49trn in a decade, a shade more than the total value today of the S&P 500 index of large American firms. All it would take is consistent annual sales growth of 60% at current operating margins of 60% or so, plus some plausible assumptions about cash flow. (Mr Anderson’s current employer, Lingotto, is owned by Exor, the biggest shareholder of The Economist’s parent company.)
On 28 August, Nvidia reported another blow-out quarter. Revenue shot up by 122%, year on year, to $30bn, an all-time high and above market projections. Investment bankers project that Nvidia’s yearly sales will double this year to over $100bn, grow by as much as half in 2025 and by double digits until at least 2027. By then, its operating profit could exceed $150bn—a third more than Apple, tech’s most successful money-spinner, managed last year.
In a sign of exalted expectations, Nvidia’s share price slumped after its results were published, possibly because they beat forecasts by less than in previous quarters. As the bulls pause to catch their breath, they might wish to ruminate on two deeper contradictions lurking in Nvidia’s long-term growth story.
The first concerns its main supplier. Nvidia designs chips but does not produce them. That falls to TSMC, a Taiwanese contract chipmaker that dominates the market for the cutting-edge silicon that goes into AI servers. As demand for these has rocketed, Nvidia has gone from one among many of TSMC’s clients to probably its second-biggest behind Apple. If it is indeed “customer B”, one of two that represent at least 10% of TSMC’s revenues, and so must be disclosed in regulatory filings, it spent $7.7bn with TSMC last year, up from $5.5bn two years earlier. Given that most of Nvidia’s purchase commitments of $19bn for 2025 are likely to end up with TSMC, it could soon eclipse the current “customer A”, which handed the Taiwanese firm just shy of $18bn in 2023.
Even as Nvidia’s and TSMC’s fates become more entwined, their product cycles are diverging. Earlier this year Mr Huang vowed to launch a new AI chip every year, rather than every couple of years. TSMC is thus in a mad rush to expand capacity, investing up to $32bn this year and possibly more in 2025. But it still takes at least 18 months to erect a new factory. And since these can cost $20bn a pop, careful discussions with clients start a year or two in advance. It is unclear how Nvidia’s accelerated timeline fits in with TSMC’s more measured pace of decision-making. In an early sign of trouble, Nvidia has delayed shipments of its latest chips, called Blackwell, by a couple of months owing to technical kinks.
