Nvidia currently enjoys a variety of benefits, including strong pricing power because of high demand for its chips and a good supply that helps the corporate enjoy gross profit margins of over 70%. That could all change, in accordance with an analyst who identified an indication investors should look ahead to that would herald the beginning of the erosion of Nvidia’s pricing power and margins. That signal is capital spending – or capex – by so-called “hyperscalers” like Microsoft, Google and Amazon. Several major technology corporations have already released their June quarter earnings reports, which showed rising spending, particularly on artificial intelligence – which incorporates the graphics processing units developed by Nvidia. These are the biggest cloud computing players on the planet which have upgraded their infrastructure to coach artificial intelligence models. Microsoft said capital spending within the June quarter rose greater than 77% to $19 billion in comparison with the identical period last 12 months. Google parent Alphabet, meanwhile, said the corporate’s capital spending within the June quarter rose greater than 90% in comparison with the identical period last 12 months. The tech giants have signaled that heavy spending on AI is more likely to proceed. “As long as that continues, you can expect the margin situation that Nvidia has right now to continue,” Josh Koren, founding father of Musketeer Capital Partners, told CNBC’s “Street Signs Europe” on Wednesday. “But when we see those capital spending forecasts start to ease … then we know that prices kind of start to erode,” he added. He said that probably won’t occur in the present quarter, but within the not-too-distant future. “It wouldn’t surprise me if it happens maybe in the next two or three quarters,” Koren said. And if that happens, it could push Nvidia’s share price down 20% or more, he added. Koren and his company don’t own Nvidia stock. Analysts saw Nvidia’s share price rise about 7% from Tuesday’s closing price on Wednesday, in accordance with LSEG data. There were 18 “strong buy” and 37 “buy” recommendations on the stock. Nvidia now faces increasing competition from corporations like AMD, but many analysts still consider the corporate is in a powerful position to beat rivals. Yang Wang, senior research analyst at Counterpoint Research, said Nvidia will get the majority of its money from cloud corporations over the following two to a few years as they proceed to extend capital spending. “Nvidia will still get the lion’s share of the $700 billion capital spending over the next two and a half years, according to our estimates. So the outlook for Nvidia should continue to be strong,” Wang told CNBC’s “Squawk Box Europe” on Wednesday.
Monday, June 9, 2025
