Nvidia Shares Slip Into Correction Territory as AI Chip Rivals Emerge

BySamson Ononeme

Apr 10, 2024 ,
Nvidia Shares Slip Into Correction Territory as AI Chip Rivals Emerge

Key Insights

  • Nvidia’s stock has entered “correction territory”, falling over 10% from its record high
  • Rival Intel has unveiled a new AI-focused processor that is claimed to be more power-efficient and faster than Nvidia’s latest GPU
  • Analysts warn that factors like “shrinking AI models, steady demand growth, and customers building their own chips” could set up a “significant cyclical downturn” for Nvidia by 2026

SAN FRANCISCO (MarketsXplora) – Nvidia, the semiconductor giant at the forefront of the artificial intelligence revolution, has entered “correction territory” as its stock price has fallen more than 10% from its all-time high, raising questions about the long-term outlook for the company.

Shares of the GPU maker, which has been a key beneficiary of the surging demand for AI-powered technologies, closed at $853.54 on Tuesday, down 2% for the session and 10% from their last record high of $950 reached on March 25.

The stock decline comes as Nvidia faces growing competition in the lucrative AI chip market, with rival Intel unveiling a new power-efficient processor aimed at powering large language models – the core technology behind generative AI tools like OpenAI’s ChatGPT.

“Although NVDA (Nvidia) should deliver a spectacular 2024 (and perhaps into 2025), we continue to believe recent trends set up a significant cyclical downturn by 2026,” analysts at D.A. Davidson said in a research note on Tuesday.

The investment bank cited factors such as “shrinking models, more steady growth in demand, maturing hyperscaler investments, and increased reliance by their largest customers on their own chips” as potential headwinds for Nvidia’s long-term performance.

Nvidia’s financial results have been on a tear over the past year, with the company reporting a 486% jump in non-GAAP earnings per diluted share in the December quarter. This was driven by a surge in demand for its GPUs, which are widely used in AI applications and data centers.

Read also! Analysts Foresee Nvidia’s Revenue Soaring to $300 Billion by 2027

However, the company’s dominant position faces new challenges as rivals like Intel make strides in developing more energy-efficient and powerful AI-focused chips.

Intel’s new Gaudi 3 processor, unveiled on Tuesday, is touted as being over twice as power-efficient as Nvidia’s H100 GPU – currently the U.S. chip giant’s most advanced graphics card – and capable of running AI models one-and-a-half times faster.

“The emergence of alternatives like Mistral’s Large and Meta’s LLaMA models, which may require less computing power, could also drive down demand for Nvidia’s high-end GPUs over time,” the D.A. Davidson analysts said.

The stock’s retreat into correction territory, defined as a decline of 10% or more from a recent high, comes amid broader concerns about the sustainability of the AI boom and its impact on the semiconductor industry.

“Nvidia has been one of the biggest beneficiaries of the AI gold rush, but the company’s meteoric rise has also made it vulnerable to increased competition and changes in market dynamics,” said Sophia Anong, a technology analyst at Novus Capital.

“Investors are now re-evaluating the company’s long-term prospects as the AI landscape evolves and new rivals emerge with potentially more efficient and cost-effective solutions.”

Read also! Tesla Shares Plunge as Elon Musk Announces Over 10% Global Workforce Cuts

Despite the recent stock pullback, Nvidia remains one of the best-performing tech stocks over the past 12 months, having gained over 200% in value. However, the company’s ability to maintain its dominance in the AI chip market will be closely watched in the coming years as the industry continues to rapidly transform.

Samson Ononeme

Meet Samson Ononeme, a dynamic writer, editor, and CEO of marketsxplora.com. With a passion for words and a sharp business acumen, Samson captivates readers with captivating storytelling and delivers insightful market analysis. He is a trailblazer in the finance industry, empowering individuals with knowledge and shaping the narrative of money. Get ready to be inspired by his literary prowess and entrepreneurial leadership.

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