There have been several next-big-thing investing prospects over the past 30 years. Although the internet has changed corporate America more than anything else, AI may challenge it. AI involves replacing humans with software and technology. Machine learning can help these systems improve over time or learn new tasks without human interaction
PwC experts anticipated last year ("Sizing the Prize, PwC's Global Artificial Intelligence Study: Exploiting the AI Revolution") that AI would add $16 trillion to the global economy by the end of the decade. AI stocks might soar if this prediction is accurate in six years.
Semiconductor giant Nvidia (NASDAQ: NVDA) has benefited most from the AI revolution. Top wealthy Wall Street money managers left Nvidia. Businesses interested in AI suddenly started talking about Nvidia's GPUs. At now, the company's A100 and H100 GPUs dominate high-compute data center GPUs.
Pricing power is another Nvidia advantage. Enterprise demand for the company's GPUs has surpassed supply. The law of supply and demand states that a scarce product will rise in price until demand drops. Not all Wall Street pros think Nvidia is the AI stock to buy. Eight prominent billionaires sold their funds' AI infrastructure interests in the December quarter, including:
Millennium Management Israel Englander (1,689,322 shares) Susquehanna International's Jeff Yass (1,170,611) Steven Cohen, Point72 Asset Management (1,088,821) David Tepper, Appaloosa Management (235,000 shares) Philipe Laffont, Coatue Management (218,839 shares) Chase Coleman, Tiger Global Management (142,900 shares) Two Sigma Investments' John Overdeck and David Siegel (30,663 shares)
Nvidia has had many successes since 2023, but it is currently facing more challenges. First, its flawless pricing power may erode in future quarters. Nvidia is producing more AI-focused GPUs and will face more competition. GPU scarcity drove most of Nvidia's data center segment's 217% sales growth in fiscal 2024 (ending Jan. 28, 2024) price power. Scarcity won't remain a tailwind long.
In addition, Nvidia faces more than external competition. Microsoft, Meta Platforms, Amazon, and Alphabet—its four largest revenue customers—are creating data center AI processors. Nvidia risks losing 40% of its net sales.
Regulators have also failed. U.S. regulators have twice blocked Nvidia's high-powered GPU exports to China, the world's second economy. Nvidia produced toned-down A800 and H800 GPUs for Chinese clients. Finally, every next-big-thing breakthrough in the past 30 years saw an early euphoria. When investors rush into a new trend, bubbles are expected, and AI is no exception
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