Market Analysis

Nvidia Shares Decline as AI Investment Growth Slows and Competition Intensifies

Amos Simanungkalit · 18 Dec 202438.4K Views

Image Credit: AP

Nvidia's stock (NVDA) dropped 1.2% on Tuesday, continuing its recent decline as investors grow wary that the artificial intelligence (AI) spending driving its growth could slow down or be diverted to competitors. Shares of the AI chip giant have fallen about 12% since reaching a record-high closing price of $148.88 in early November.

Nvidia's rapid rise, from a company known for gaming graphics cards to the leading supplier of AI chips, coincided with Big Tech's increased investment in generative AI. In 2024, it briefly surpassed Apple (AAPL) as the world's most valuable company and replaced Intel (INTC) in the Dow Jones Industrial Average. Wedbush analyst Dan Ives expects Nvidia's market cap to exceed $4 trillion by 2025.

However, after its peak in November, Nvidia’s stock has been slipping, spurred by Microsoft (MSFT) and Google (GOOG) signaling slower future growth in AI spending. Concerns about overheating in Nvidia's new Blackwell AI servers and potential production delays have also contributed to the stock's decline. Even Nvidia's strong earnings report, which beat analysts' expectations, couldn’t reverse the downward trend.

Adding to Nvidia’s challenges, China’s competition authority launched an antitrust investigation into Nvidia’s $7 billion acquisition of Mellanox, a networking technology company. The competitive landscape is also intensifying, with Amazon (AMZN) announcing plans to develop its own AI chips, and Broadcom (AVGO) forecasting $90 billion in revenue over the next three years from custom AI chips. Despite analysts stating that Broadcom's success will not directly harm Nvidia, it still sent Nvidia’s stock further down. On the same day, the PHLX Semiconductor Index (^SOX), which includes Nvidia, fell by 1.6%.

Despite ongoing AI investments by Big Tech companies, the return on these investments remains uncertain. Microsoft, Meta (META), and Google have all seen substantial increases in capital expenditures related to AI, while only 4% of U.S. workers use AI on a daily basis, according to a recent Gallup poll.

JPMorgan analyst Samik Chatterjee stated that concerns about a slowdown in AI spending may be overstated. While AI-related infrastructure spending from major hyperscalers grew 57% in 2024, it is expected to increase by 30% in 2025 and 25% in 2026.