Nvidia’s latest quarterly numbers were very impressive – producing 78% sales growth. They dominate the market for AI chips. A small nitpick could be the three point decline in gross margins (but that’s expected). Let’s not forget – those gross margins are still 73%. No-one else comes close in the semiconductor industry. So why would the stock tank 8.5%? Simple: expectations. The market knew that Nvidia was going to grow at revenue at least 70%+ where gross margins would be north of 70%. But growth is slowing (as they get bigger) and margins are declining (as competition starts to ramp up)
NVDA
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Investor’s (Valid) Capex Concerns w/AI
Large-cap tech’s planned capex for 2025 is worrying investors. What will be the return on that capital? Never before have these companies made such large bets. Before DeepSeek, it was assumed the tech giants – with their deep pockets and almost limitless resources – would enjoy a wide moat in the AI arena. And from there, that justified the high valuation multiples. Not now. DeepSeek’s arrival challenges those long held assumptions (and valuations).
Investors Starting to Question AI’s ROIC
AI investors were caught off guard this week on news of China’s ChapGPT rival “DeepSeek”. It’s alleged DeepSeek was developed far more cost-effectively (millions vs billions) than OpenAI’s ChatGPT (and similar large language models). If true (and we don’t know) – this raises questions about the sustainability of current U.S. AI infrastructure investments – forecast to top $1 Trillion next year. All of a sudden – valuations for these AI stocks are being questioned.