‘Hitting the Wall,’ Says Investor About Nvidia Stock

The bull case for Nvidia Corporation (NASDAQ:NVDA) is fairly straightforward and easy to understand. As the race to build out the AI future hits hyperdrive, the demand for the company’s advanced GPUs and accompanying software will continue to drive record revenues and strong profit margins.

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So far, that narrative has by and large been the dominant one throughout the market. While there have been dips and blips, for the most part NVDA’s share price has been on a historic heater over the past few years.

Its massive growth speaks to the hungry appetite for the company’s products. In its last quarter, Nvidia delivered quarterly revenue of $68.1 billion, a sequential jump of 20% and a 73% increase year-over-year.

Company management continues to project additional increases going forward, as reflected by CEO Jensen Huang’s bullish statements.

“In this new world of AI, compute is revenues,” stated Huang on the company’s most recent earnings call. Record amounts of capex spending by the hyperscalers certainly support this confidence.

However, investor Daniel Schönberger worries that at some point the gravy train will run out of steam. And that would place NVDA’s rapid growth under some serious threat.

“I think AI spending might hit a wall in the near future,” predicts the investor, who draws parallels with the IT spending drop in the early 2000s.

That’s not to say that Schönberger is downplaying Nvidia’s past success. Indeed, he appreciates how rare it is for a company of Nvidia’s size to be growing at such an “insane” pace.

But here’s the thing about growth rates, cautions the investor, they’re not predictable.

Looking at the math, Schönberger has a hard time wrapping his head around the $3 to $4 trillion that Nvidia is predicting in AI infrastructure spend by 2030. Putting this number in perspective, he notes that the current U.S. GDP is around $31.49 trillion.

Turning to history, Schönberger points out that $130 billion in IT spending in 2000 dropped to $60 billion in 2002. A similar drop in AI capex, needless to say, would be very problematic for the company and its investors.

“I still see huge downside risk with NVIDIA being cut in half being a possibility in the coming quarters,” concludes Schönberger, who is maintaining a Sell rating for NVDA. (To watch Daniel Schönberger’s track record, click here)

Wall Street doesn’t buy this gloomy forecast. With 38 Buys, 1 Hold, and 1 Sell, NVDA soars to a Strong Buy consensus rating. Its 12-month average price target of $271.11 has an upside approaching 50%. (See NVDA stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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