Nvidia benefits from a first-mover disadvantage
EW YORK, Feb 25 (Reuters Breakingviews) – Nvidia (NVDA.O),depends, at least somewhat, on a first-mover disadvantage. The chipmaker led by Jensen Huang should report another quarter of breakneck growth on Wednesday, with analysts expecting earnings to skyrocket 60% year-over-year to $21 billion, according to LSEG data. Efficiency breakthroughs and uncertain payoffs threaten the artificial intelligence splurge boosting the company. For now, though, customers have more to lose from cutbacks.
The company behind the industry-standard chips powering AI has grown revenue tenfold in the past five years, with shareholders enjoying a total return exceeding 1,800%. As systems grow in complexity and ubiquity, Nvidia benefits. Insatiable demand and resultant shortages boosted pricing power, lifting the company’s gross margin to an astonishing 75% last quarter.
Such growth means that the stock’s stellar performance isn’t indefensibly overheated, with the company trading at 29 times estimated earnings over the next 12 months. That’s roughly in the ballpark of other tech behemoths.
But a few select customers drive results: just 3 of them generated 36% of revenue last quarter. Microsoft (MSFT.O), Amazon.com (AMZN.O), Alphabet (GOOGL.O), and Meta Platforms (META.O),are projected to spend over $300 billion on capital investment this year, up about a third from 2024. If they pull back, things could change quickly.
There are reasons to fear just that. China’s DeepSeek claimed to train AI models with astonishing efficiency, raising questions over the necessity of chip spending and slicing Nvidia’s market value by roughly $600 billion in a day. If bleeding-edge chatbots are less costly, competition might rise and profit margins fall, curbing enthusiasm.
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Nvidia benefits from a first-mover disadvantage, source
