Nvidia's Slowing Stock Growth Raises Concerns Over AI Boom Sustainability
Nvidia's stock growth has slowed down significantly since its explosive rise during the AI boom. The company's shares have gained just 19% this year, lagging behind the S&P 500 Information Technology Index's 28% climb. This slowdown comes as Nvidia prepares to launch a massive share buyback program, authorizing $150 billion in repurchases, which surpasses Apple's previous record of $110 billion.
The chipmaker's fiscal second-quarter earnings were impressive, with net income reaching nearly $59.7 billion, up 126% from the previous year. However, investors are questioning whether AI spending will justify the enormous sums being spent on chips and data centers. Goldman Sachs estimates that hyperscalers would need to generate around $300 billion in annual AI revenue to break even.
Nvidia's dominance in the advanced chip industry is undeniable, controlling over 80% of the market for GPUs used in AI. Nevertheless, investors are no longer willing to pay as much for its earnings as they were during the height of the AI boom. The company's valuation has declined, with the stock briefly falling below 17 times expected earnings over the next 12 months.