Since ChatGPT was released at the end of 2022, the AI story has centred on Nvidia (US:NVDA). Its near monopoly on artificial intelligence (AI) computing has driven remarkable earnings growth and at multiple points in the last year it was the most highly valued company in the world.
It has always been clear Nvidia is going to profit from AI, but investor uncertainty has gradually crept in as its valuation rose. The concern is for how long it can maintain its monopoly and its exceptional operating margin.
Last month, in Nvidia’s most recent results there were signs of cracks. Revenue rose 93 per cent year-on-year, yet this was a slowdown from 122 per cent last quarter. Its networking revenue was disappointing, rising just 20 per cent year-on-year and falling 15 per cent quarter-on-quarter. At the same time, the gross margin fell back 3.3 percentage points to 75.7 per cent.