Demand Side risk
My issue with Nvidia is their reliance on a few massive hyperscalers. These hyperscalers are investing massively into a heavily depreciating asset; (4-6 years). When so many massive players are piling into the same sector, it creates a supply-demand effect that is favouring Nvidia massively. The question is, will they keep pilling into the data centers – or is supply being met to an extent that the ROIC is simply not strong enough given the high capex?
People seem to forget that the chip industry is cyclical.
AI has massively improved on the basis of training the models on the whole internet, this was a breakthrough – expecting the same improvements or an exponential curve of endless improvements is optimistic the least. Currently the market might be overestimating the technological developments in the short term and underestimating in the long term.
I am not saying Nvidia is a bad investment, but I am arguing that there is inherent supply-demand risk from their biggest customers, whom are currently fighting a race to the bottom. My theory is that compute will become so cheap, that hyperscalers have to decrease spending.
There are also other issues regarding grid capacity, electricity and necessary natural resources.
Supply side risk
When demand outstrips supply, you increase supply – there is a few years delay in the chip industry, due to long manufacturing times … when supply finally hit the market, demand has often normalised
In this case the hyperscalers are rushing in to ensure they are not losing the ai race – this is nothing new, the worst thing that could happen for a mag7 company is that their technology becomes a thing of the past, so they continuously make big investments and innovate – anyways, they are ordering a little extra to make sure they are not falling behind – at the same time, foundries are building a little extra to make sure they are not losing sales – eventually these two things are going to collide, leading to a bust before the next boom (and so the cycle continues)…
Note: neither demand or supply is linear
AI is overhyped
This needs to be addressed with an abundance on AI slob.
It hallucinates, it fails at basic tasks, it creates a narrative on assumptions.
I have played around with it quite a bit – and honestly – its almost useless.
Even kids are using AI for a synonym for trash. I am well aware this is not valueinvesting – but also 95% of the posts here are not – its more like a growth at any price forum.
Ever pulled data using AI only to double check it messed up the abbreviations? I have.
Ever had it miss the latest annual report when making conclusions? I have.
Ever had it create an obviously wrong narrative? I have.
Ever had AI fail at basic math? I have.
AI are yes sayers; if you present a bull thesis it will in many cases agree. I have prompted mine to disagree/evaluate both sides – but often I notice it will disagree with things that are obviously true. It does not think – It cannot evaluate moats. It reads a TAM and it assumes its true – it does not think.
Lately it has come to the attention that Reddit is the most cited source from ChatGPT. Furthermore, programmers are again being an sought after resource; hinting at layoffs being overdone. Finally, AI expenditures are being scaled down in major firms, as costs are simply too high to justify.
