Nvidia shares edged higher last night as record revenues eased fears the artificial intelligence (AI) stock market bubble is about to burst – at least for now.
In one of the most eagerly awaited updates in recent corporate history, the world’s most valuable company said it raked in £44billion in the third quarter of the year, up 62 per cent on the same period 12 months earlier.
The AI microchip pioneer also said it expects fourth-quarter sales of £50billion – well ahead of Wall Street estimates.
The figures were seen as critical moment as investors looking for signs whether the AI bubble is about to burst – or fears of a stock market meltdown were overblown.
And Nvidia shares rose more than 4 per cent in the minutes after the figures were published before easing – with analysts warned of further volatility ahead.
Nvidia became the world’s first $5trillion company last month as fears investors continued to pile in despite fears that the bubble may be about to burst.
Chip shop: Nvidia said it raked in £44bn in the third quarter of the year and that it expects fourth-quarter sales of £50bn – well ahead of Wall Street estimates
But before last night’s results, the stock had fallen around 10 per cent in just three weeks, wiping $500billion off its value.
Julian Emanuel, chief equities strategist at Evercore ISI, said: ‘The angst around peak AI has been palpable.’
But Chris Beauchamp, chief market analyst at trading platform IG, said last night’s figures from Nvidia ‘are unlikely to settle the question of whether we are in an AI bubble’ or not.
‘It’s Nvidia’s world really, we all just live in it,’ he said. ‘US stocks dominate the fate of global markets, and as the largest single listed entity in the world, Nvidia’s earnings are an event marked on the calendar of every investor.’
Worries about an bubble have intensified this month amid signs some shareholders are voting with their feet.
Two major technology investors – Japanese conglomerate Softbank and American entrepreneur Peter Thiel – have recently dumped their entire stakes in Nvidia.
And Michael Burry – the ‘Big Short’ investor who famously anticipated the US housing crash ahead of the 2008 financial crisis – disclosed a big bet his hedge fund had made on Nvidia’s share price falling.
Bosses of major investment banks such as Goldman Sachs, JP Morgan Chase and Morgan Stanley have warned that a sharp correction in the stock market, when prices drop after being overvalued, is likely in the next one to two years.
Fears of a wider market rout should the AI bubble burst were echoed by Sundar Pichai, the boss of Google owner Alphabet, who this week warned no company would be immune from the effects.
Pichai drew comparisons between the AI bubble and the dotcom boom of the early 2000s, when the growth of the internet fuelled stock market hype around any firm related to the sector, only for it all to come crashing down around the turn of the millennium.
‘I expect AI to be the same,’ he said. ‘So I think it’s both rational and there are elements of irrationality through a moment like this.’
Reacting to Nvidia’s latest figures, Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ‘Nvidia bears the weight of the world, but like Atlas, it’s standing firm under that towering mountain of expectations. Third quarter results delivered the goods and then some.
‘While AI valuations are dominating the news feeds, Nvidia is going about its business in style. There are certainly pockets of the AI space where valuations needed to take a breather, but Nvidia is not in that camp.
‘In fact, while shares have performed well this year, the valuation has gotten more attractive as earnings growth has raced ahead.
‘Looking ahead to next year, demand isn’t in question, Nvidia already has a massive backlog of orders. What’s new is that its market dominance is facing scrutiny.
‘Key customers are exploring viable alternatives, at least on paper, as they seek faster compute and diversification away from a single supplier.
‘The real question is how those alternatives stack up. Designs and promises of similar performance are one thing; track record at scale is another, and no one matches Nvidia there.
‘Its breadth remains underrated: a full data center business spanning chips, software, networking, and more. Even if rivals can offer parts of the stack, Nvidia’s fully integrated solution will be hard to beat.’
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