AI

Nvidia's Profits Soar, But AI Bubble Fears Won't Die

AI Bubble Warning: Nvidia's Record Profits Fail to Stop Market Panic. Are You Ignoring the Signs?
The AI bubble is about to burst. Or is it?
  • Nvidia's sales and profits surged over 60% year-on-year, crushing Wall Street expectations.
  • Despite the record earnings, the market remains unconvinced, with Nvidia's stock dipping as persistent AI bubble concerns overshadow the news.
  • CEO Jensen Huang dismisses the bubble talk, claiming we are in year three of a "10-year build out" of a new industrial revolution.
  • Major questions remain about the sustainability of Big Tech's massive spending on AI infrastructure and Nvidia's financial ties to key, unprofitable customers.

Nvidia's Earnings vs. Market Fears

Concerns about an artificial intelligence bubble have been simmering for well over a year, and this week, Nvidia—the undisputed king of AI chips—did everything in its power to put them to rest. It wasn't enough. The chipmaking giant posted staggering financial results, with sales and profits rocketing up by more than 60% year-on-year, easily surpassing Wall Street's ambitious projections. CEO Jensen Huang confidently stated that "sales are off the charts" and projected fourth-quarter revenue of around $65 billion, once again ahead of analyst forecasts.

On a call with analysts, Huang directly addressed the growing anxiety. "There’s been a lot of talk about an AI bubble," he said. "From our vantage point, we see something very different." However, the wider market wasn't buying the reassurance. After a brief uptick, Nvidia's shares (NVDA) slid back, closing Friday down 1% and signaling that the narrative of an impending AI bust remains powerful.

The Case for an AI Revolution

Nvidia executives and a number of industry analysts argue that the current boom is not a bubble but the foundation of a technological revolution. CFO Colette Kress projected that annual AI infrastructure spending could reach a mind-boggling $3 trillion to $4 trillion by the end of the decade. To bolster this claim, she pointed to the tangible successes of Nvidia's partners:

  • At Meta, AI recommendation systems are increasing user engagement on Facebook and Threads.
  • Anthropic expects to hit $7 billion in annual revenue this year.
  • Salesforce has boosted its engineering efficiency by 30% using AI for coding.

This sentiment is echoed by tech analysts like Dan Ives of Wedbush, who called the current phase "Year 3 of a 10-year build out of this 4th Industrial Revolution." Similarly, Brian Colello of Morningstar sees the bubble fears depressing Nvidia's stock as a prime "buying opportunity."

Why the Bubble Fears Persist

Despite the strong numbers and powerful testimonials, significant red flags are keeping investors on edge. The central question is whether the colossal spending by Big Tech on AI infrastructure is sustainable. Tech giants are expected to pour $400 billion into AI this year alone, partly to meet demand and partly out of fear of being left behind.

Lingering Doubts and Unanswered Questions

Adding to the unease are Nvidia’s own investments in key, yet unprofitable, customers like OpenAI and Anthropic, creating what some see as a circular funding loop. The alarm bells rang louder earlier this month when OpenAI CFO Sarah Friar suggested the government should backstop the massive debt tech companies are incurring to build out AI. Though the company later walked back the statement, it was seen by many as a sign of potential financial strain.

According to Daniel Morgan, senior portfolio manager at Synovus Trust Company, Nvidia’s latest report didn't resolve these fundamental questions. Instead, it just "punted" them to the next quarter. For now, Nvidia has a lot more work to do to convince the world that the industry is heading for a boom, not a bust.

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