Nvidia‘s Growth & The AI Investment Question
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Nvidia continues to demonstrate strong growth, fueled by demand for its AI-focused products. The Gaming segment saw a 30% year-over-year revenue increase, though sales dipped 1% sequentially as channel inventories normalized. Professional Visualization revenues surged, up 56% annually and 26% sequentially, driven by the launch of the DGX Spark™ and Blackwell line. These results confirm robust demand, echoing statements from TSMC (Nvidia’s manufacturing partner) and Nvidia CEO Jensen Huang, who anticipates over $500 billion in cumulative revenue through 2026, including future Rubin line products.
Concerns Beyond Revenue: Self-Induced Demand & Business Adoption
However, investor focus is shifting beyond immediate revenue figures to the sustainability of this demand. A key area of scrutiny is Nvidia’s partnerships,particularly the recent letter of intent with OpenAI involving potential investments of up to $100 billion to expand AI data center capacity. Some experts criticize this as perhaps creating “self-induced” demand, where companies financing OpenAI also supply the hardware powering it (like Oracle).
UBS highlights that the critical factor will be actual demand from businesses. If companies begin adopting AI in importent quantities and on a realistic timeline (2026-2027), the current investment trajectory is justified. Otherwise, challenges could arise, especially considering…
The Strain of Hyperscaler Capex
…the massive capital expenditures (Capex) planned by hyperscalers. Historically, these large tech platforms have funded their investments through operating cash flow. However, the scale of AI requires such ample outlays that this capacity is being rapidly depleted. Bank of America analysis shows hyperscalers are currently using 72% of their operating cash flow for capital expenditures, a figure projected to exceed 90% by 2026. With over $500 billion in digital infrastructure spending anticipated by 2026, these concerns are understandable, and are contributing to cautious market sentiment.
