Is the Nvidia Business model sustainable?

Over the last five years, Nvidia stock is up over two thousand percent. This has been caused by a series of bubbles including increased popularity of gaming during the pandemic, crypto mining, and now artificial intelligence. The value placed on these Nvidia chips has continued to increase along with increased demand for their products.

This increase in demand was kickstarted by the COVID-19 pandemic. Since many people had to quarantine for substantial amounts of time, boredom grew. One fix for this problem was video games. This increased interest in gaming created a huge demand for computer parts, mainly graphics cards. Nvidia, the largest manufacturer of graphics cards, saw a huge spike in their stock price. This trend didn’t last forever. With less people being in quarantine, the demand for graphics cards went down, and so did the stock price.

When this bubble was dying down, a new use for graphics cards emerged. The mining of cryptocurrency, which requires enormous amounts of computing power, saw an increase in popularity. Although Nvidia was known as a gaming company, they gladly supplied graphics cards to crypto miners who were willing to pay a premium for their products. After the interest in crypto mining died down, Nvidia’s stock price again plunged down.

This downward trend didn’t last for long with the rise of artificial intelligence. Artificial intelligence requires tremendous amounts of computing power. The artificial intelligence bubble created great demand for graphics cards with Open AI using ten thousand graphics cards alone. Through exuberant prices, tech companies are still happy to buy graphics cards from Nvidia. This is because of their superior performance. With a market cap that is into the trillions, it raises the question, “Is this sustainable?” isn’t sustainable.

Relying on the next big trend isn’t sustainable in the slightest. Gaming and Crypto mining have shown that when the hype dies down around a trend that Nvidia is relying on, the stock price tanks. During both of these crashes the Nvidia stock price went down by nearly fifty percent. Now, interest in artificial intelligence is starting to stall. With many major companies already purchasing graphics cards, there begins to be a lack of new companies to sell to. Also, many large tech companies will soon make their own computer chips to get some of the massive profits from artificial intelligence. These issues of decreased interest, falling demand, and new competition make it nearly impossible for a massive company valued at nearly three trillion to continue to grow at this rate.

Sources:

https://finance.yahoo.com/news/nvidia-future-ai-bubble-waiting-112000283.html

https://www.nasdaq.com/articles/nvidias-bubble-about-burst-3-numbers-have-me-thinking-it-just-might-be