If you've held Nvidia (NVDA +2.75%) stock from before the launch of OpenAi's ChatGPT, or even if you bought it eight months ago, you've made a handsome return.
However, plenty of investors, including hedge fund billionaires like Stanley Druckenmiller, have already sold most of their stakes in Nvidia, claiming that the market has caught on to what they recognized earlier in the AI chip leader.
With Nvidia stock nearly a 10-bagger now since the start of 2023 and its market cap now in excess of $3 trillion, it's natural to consider selling the stock or booking some profits.
Concerns are already bubbling about an AI bubble as the sector has come so far so fast with relatively little to show for it in terms of new software or a "killer app." Investors are also growing more skeptical toward stocks like Alphabet (GOOG 1.27%) (GOOGL 1.25%) and Microsoft for ramping up spending on AI infrastructure as both stocks fell after their recent earnings reports on concerns that they were spending too much.
However, one quote from Alphabet co-founder Larry Page should help put to rest any concern that the tech giants are going to slow down spending on AI infrastructure anytime soon.
Image source: Getty Images.
It's about more than ROI
On Patrick O'Shaughnessy's Invest Like the Best podcast, Gavin Baker, Chief Investment Officer for Atreides Management, shared an anecdote about what's been going on in the Alphabet offices. According to Baker, Page has been telling people at Google, "I am willing to go bankrupt rather than lose this race." That shows how high the person who led Alphabet through its halcyon days thinks the stakes are in AI.
Baker went on to describe the leaders of Meta Platforms, Microsoft, and Alphabet as being in a race to create a "Digital God," or artificial general intelligence (AGI), which is likely to be worth trillions of dollars in value if not tens of trillions or even more.
He also explained that the tech giants are counting on the models to scale, or get better as they get bigger, and the tech giants are unlikely to slow down their spending on AI infrastructure until they're proven otherwise.
AGI could be more disruptive than any technology before it, including the internet, and most tech CEOs seem to think this. For example, OpenAI CEO Sam Altman told Time magazine last December, "I think AGI will be the most powerful technology humanity has yet invented."
In other words, the Wall Street analysts who focused on return on investment (ROI) are being shortsighted, according to tech titans like Page and the current crop of "Magnificent Seven" CEOs.
Focusing on a jump in capital expenditure spending in one quarter misses the point when such a disruptive technology is emerging.
NASDAQ: NVDA
Key Data Points
What it means for Nvidia stock
If you're still trying to decide whether to sell Nvidia stock or not, the comments above show how big the long-term impact of generative AI technology is expected to be and that technology is being built on Nvidia components. Nvidia is the most essential company in the AI revolution.
However, Nvidia could very well experience an impact in the shorter term. At some point, fears about a lack of ROI in AI are likely to push the stock lower, and Nvidia's blistering growth rate will eventually slow.
For investors, the race to lead in AI should ensure continued demand for Nvidia's components, but concerns about its valuation, slowing growth, and competition are valid, and at a $3 trillion valuation, its upside is more limited than it once was.
Holding the stock for the long term still looks like the right move, but investors should be prepared for volatility. After all, according to Page's statement, the consequences of losing the AI race could be going bankrupt, and that would be a problem for Nvidia, as well as for Alphabet.
