Nvidia and Advanced Micro Devices Have Sounded a $711 Billion Warning to Wall Street That AI Investors Simply Can’t Ignore
The advent and proliferation of the internet began altering corporate growth trajectories more than three decades ago. Since then, investors have been waiting (impatiently) for the next technological leap forward. While several other hyped trends followed in the footsteps of the internet, including nanotechnology, 3D printing, and blockchain technology, it’s artificial intelligence (AI) that’s truly stepped up.
Analysts at PwC believe artificial intelligence can add $15.7 trillion to the global economy by 2030. If this estimate is even remotely close, it explains why shares of graphics processing unit (GPU) titans Nvidia(NASDAQ: NVDA) and Advanced Micro Devices(NASDAQ: AMD), commonly known as “AMD,” have soared. Since the start of 2023, shares of Nvidia and AMD have climbed by 1,140% and 208%, respectively.
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But while the operating results of this dynamic duo validate investors’ excitement, Wall Street’s immediate reaction to their quarterly results is nothing short of a $711 billion warning that AI investors can’t ignore.
However, before digging into the details behind this warning, investors need to understand how Nvidia and AMD became two of the most consequential companies in the AI arena.
Most of the hoopla surrounding these juggernauts stems from their GPUs. While both companies have other product lines, many of which are profitable/successful, investors’ focus has been on growth in their respective GPUs — i.e., the brains powering split-second decision-making, generative AI solutions, and large language model training in AI-accelerated data centers.
Nvidia’s GPUs have held a virtual monopoly in enterprise data center market share for years. Several generations of its GPUs, including Hopper, Blackwell, and Blackwell Ultra, have been superior to external competitors, including AMD, in terms of compute capabilities.
To build on this point, it’s unlikely that AMD or any overseas competitors will close the gap anytime soon. Nvidia CEO Jensen Huang is spearheading an aggressive innovation cycle that’ll see a new advanced AI chip introduced annually. The Vera Rubin GPU will succeed Blackwell Ultra when it hits the market in the second half of 2026.
Although AMD’s Instinct series GPUs haven’t been able to keep up with Nvidia over a short sprint, its chips nevertheless remain highly valuable. They’re less costly than Nvidia’s hardware and may offer shorter wait times. First-mover advantage in the AI space isn’t all about compute, and AMD can absolutely take advantage of this dynamic.
In their latest respective fiscal years, Nvidia reported full-year data center segment sales of $193.7 billion (up 68%), while AMD recorded $16.6 billion in revenue (up 32%) from its data center operations.
It’s also worth noting that GPU scarcity has played a critical role in the success of both companies. With demand for AI infrastructure seemingly insatiable, Nvidia and AMD have been able to raise prices on their most advanced GPUs. Higher prices have translated into more attractive gross margins for both companies.
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While a laundry list of things has gone right for Nvidia and AMD, history has been cautioning for some time that a reversal of fortune is coming. Until recently, historical precedent was the clear tailwind in the sails of skeptics. But there’s a new, tangible headwind for AI investors that’s simply too big to ignore.
When Nvidia reported its fiscal fourth-quarter operating results after the closing bell on Feb. 25, its share price quickly jumped to as high as $203.10 in after-hours trading. Two days later, as of the closing bell on Feb. 27, Nvidia stock had dipped to $177.19. On a peak-to-trough basis, Nvidia lost approximately $630 billion in market value following its quarterly report.
But it’s not alone. From the closing bell on Feb. 3, when AMD lifted the hood on its fiscal fourth-quarter results, to the close of trading on Feb. 5, AMD shares plunged from $242.11 to $192.50. This decline erased roughly $81 billion in market cap.
Collectively, Nvidia and AMD lost $711 billion in market value on a peak-to-trough basis less than 48 hours after they unveiled their respective fiscal fourth-quarter and full-year operating results. The message is loud and clear: investors’ AI expectations are too lofty.
History shows that every game-changing technology has had to navigate an early innings bubble-bursting event over the last 30 years. Although there isn’t any rhyme, reason, or warning as to when the music stops, the constant of every next-big-thing trend has been investors overestimating the adoption and/or optimization of said innovation.
Artificial intelligence doesn’t have an adoption issue. Nvidia’s and AMD’s operating results make clear that businesses would spend even more if world-leading chip fabricator Taiwan Semiconductor Manufacturing could further expand its monthly chip-on-wafer-on-substrate capacity.
However, expecting businesses to optimize AI solutions to maximize sales and profits is a tall task in a short time frame. It took public companies well over a half-decade to decipher the ins and outs of the internet to maximize its potential. It’ll likely take several more years before companies unlock the true potential of AI.
Nonetheless, it insinuates that history is rhyming once more and that investors have overestimated the early stage optimization of AI solutions. If this proves accurate, an AI bubble will eventually form and burst, dragging Wall Street’s most prominent AI hardware stocks down with it.
Nvidia and AMD may also be challenged by internal competition. Many of their largest customers by net sales are internally developing GPUs to use in their data centers. Even though these chips aren’t on the same level as Nvidia’s and AMD’s hardware, they’ll be notably cheaper and more readily accessible. This is a recipe that could stamp out the GPU scarcity that’s fueled strong pricing power and juicy margins for Nvidia and AMD.
If shares of Nvidia and AMD can’t power forward after record quarterly sales, it should serve as a warning to Wall Street that investors’ expectations may be unreachable.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
