For more than a year, Nvidia NASDAQ:NVDA has been the talisman of the artificial-intelligence boom. Its chips power the large-language models and data-crunching systems on which the industry depends. Its market capitalisation, which recently touched $4trn, has seemed to defy financial gravity.
But Nvidia’s latest quarterly results suggest the firm is moving into a new phase: still impressive, but no longer supernatural.
The figures, published this week, were solid enough by any normal standard. Adjusted earnings per share came in at $1.04 on revenues of $46.7bn, ahead of consensus. Sales from its data-centre division, which accounts for the bulk of its business, jumped 56% to $41.1bn.
Yet markets were unimpressed. Margins narrowed from 78% to 72%; sales, though growing briskly, fell slightly short of forecasts; and growth in the coming quarter is projected to cool to 52%. The shares dipped in after-hours trading as investors digested the signs of deceleration.
Nigel Green of deVere Group, a financial advisory, calls this the moment Nvidia has shifted “from hyper growth to high growth”. That may sound like splitting hairs. But when a company has been priced as though its stellar expansion could continue indefinitely, even a hint of normality can feel like disappointment.
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Concentrated bets
Investors are increasingly worried about concentration. Reports suggest that two customers — believed to be Microsoft NASDAQ:MSFT and Meta NASDAQ:META — account for nearly 30% of Nvidia’s revenues. That leaves the firm exposed. Should either tighten spending, the tremors would be felt immediately.
Competition, too, is heating up. AMD NASDAQ:AMD and Intel NASDAQ:INTC are ramping up their own offerings, while the hyperscalers — Amazon, Google, Microsoft and Meta — are investing heavily in custom chips to reduce dependence on their supplier.
Geopolitics adds further complications. America has restricted exports of Nvidia’s H20 chips to China, cutting the firm off from a market that its boss, Jensen Huang, reckons is worth $50bn. Beijing, meanwhile, is pumping money into domestic chipmakers in a bid to catch up. Nvidia may remain the undisputed leader for now, but its dominance is not guaranteed.
Is NVIDIA getting too big for the market?
The firm’s importance to equity markets is itself a source of risk. Nvidia alone accounted for more than a quarter of the S&P 500’s gains last year. Along with Apple and Microsoft, it represents over 15% of the index. Such concentration is unusual, and fragile. As Green notes, “markets can’t rely on one stock to deliver so much of the growth story”.
This echoes a broader trend in technology. What were once monopolistic businesses are morphing into bruising arenas of competition, while capital requirements are ballooning. Meta, for example, has expanded net income at about 25% a year since 2019, but capital spending and share-based compensation have risen just as fast, leaving free cash flow flat. It now depreciates AI servers over five years, even though the chips inside them become obsolete in one. When depreciation schedules become a talking point, the romance of capital-light tech has long gone.
Nvidia designs chips but outsources manufacturing to TSMC, the Taiwanese foundry that also makes leading-edge processors for its rivals. In practice, no matter who wins the design race, whether Nvidia, AMD, Broadcom or the cloud giants’ in-house efforts, TSMC profits. Yet it trades at less than 25 times forward earnings, compared with more than 40 for Nvidia. Markets, wary of Taiwan’s geopolitical risk, seem blind to the fact that Nvidia is just as reliant on the island as TSMC is.
AI relies on infrastructure
The AI boom also relies on infrastructure that goes far beyond semiconductors. Big Tech is expected to spend more than $400bn on data centres in 2026. Meta is building Prometheus and Hyperion; OpenAI is constructing Stargate; Elon Musk’s xAI has Colossus. These are not just server farms but the industrial cathedrals of a new era. They demand power, transmission and fibre on a colossal scale. Builders such as Balfour Beatty LON:BBY, or suppliers of electricity and natural-gas turbines, will capture steady profits regardless of whether Nvidia retains its crown.
For investors, the lesson is clear. Nvidia remains at the heart of Artificial Intelligence, but the age of effortless outperformance is ending. Growth is still rapid, but no longer miraculous. As the industry expands, the spoils will be spread more widely — across manufacturers like TSMC, infrastructure providers like Siemens Energy, and utilities able to keep the lights on in the world’s new computing temples.
AI may yet transform the global economy. But it still needs silicon, bandwidth and above all power. The smart money, increasingly, is following those needs.
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