Nvidia Will Be Crushed By The Competition In The Next 2 Years, But Not For The Reason You Might Think

For much of the past 19 months, the bulls have ruled Wall Street. All three major stock indexes have catapulted to multiple record highs this year, with the rise of artificial intelligence (AI) being the main catalyst.

The excitement around AI has to do with the ability of software and systems to learn over time without human intervention. This machine learning ability should enable software and AI-based systems to become more proficient at their assigned tasks and learn new skills, thus giving the technology utility in most sectors and industries.

Although estimates vary wild for AI, analysts at PwC released a report last year (Size of the award) claiming that the technology could add $15.7 trillion to the global economy through increased production and consumption benefits by 2030.

No company has benefited more from the skyrocketing euphoria surrounding artificial intelligence than semiconductor titanium Nvidia (NASDAQ: NVDA).

Until recently, Nvidia’s operational execution has been virtually flawless

The reason investors have flocked to Nvidia above all other AI companies is its hardware. Its H100 graphics processing unit (GPU) has quickly become the standard chip used by companies running generative AI solutions and training large language models (LLM) in compute-intensive data centers. Nvidia was responsible for all but 90,000 of the 3.85 million GPUs shipped for use in data centers last year, according to TechInsights.

What’s more, the company’s hardware is in such demand that it and its next-generation chips are on hold. When the demand for a good or service exceeds the supply, it is perfectly normal for the price of that good or service to rise. A substantial increase in the price of Nvidia’s H100 GPU boosted the company’s adjusted gross margin by 13.7 percentage points over the past five reported quarters.

CEO Jensen Huang has also overseen a major investment in continued innovation, which should help Nvidia maintain its GPU advantage. The company’s next-generation Blackwell chip aims to accelerate capability in six areas, including generative AI, while using less power than its predecessor chip. Meanwhile, the Rubin platform, which will run on the new Vera processor, is scheduled to ship sometime in 2026.

These catalysts have helped boost Nvidia’s market cap by $2.4 trillion since the start of 2023, translating into a 695% gain for investors since the August 13 closing bell.

While things have been seemingly perfect for Nvidia and its shareholders, my prediction is that evolution is about to happen. significant harder for Wall Street’s AI darling.

The story continues

Nvidia is about to get crushed by the competition — but probably not in the way you think

Every publicly traded company faces headwinds and/or competitive pressures. Despite maintaining a near monopoly on AI-GPUs for data centers, Nvidia is likely to be crushed by competitive pressures in the next couple of years.

Some of you might think I have no idea what I’m talking about given the well-defined advantages of Nvidia’s H100 and upcoming Blackwell chip stack over other key hardware players – me too not I don’t agree with you. There’s a very good chance that Nvidia’s willingness to spend aggressively on research will allow the H100 platform, Blackwell, and possibly even Rubin to remain at the top of the pack in terms of computing power.

The problem for Nvidia is that compute capacity is only one of the factors companies consider when building their AI-accelerated data centers. This ability is undoubtedly important…but it’s not everything.

Despite the efforts of the world leader in chip manufacturing Taiwan Semiconductor Manufacturingits chip-on-wafer-on-substrate (CoWoS) capability is still insufficient to meet Nvidia’s needs. CoWoS is a real must for high-bandwidth memory packaging required in high-capacity data centers. In other words, Nvidia’s chips might be faster, but the company can’t fulfill all its orders or ship soon.

When you talk about first-mover advantages in generative AI and LLM, at least some companies won’t wait to fill valuable hardware “real estate” in their data centers. Advanced microdevices (NASDAQ: AMD) has stepped up production of the MI300X AI-GPU, which has an average price of around $15,000, compared to the H100, which comes in at around $30,000 per chip. AMD’s chip may not have a compute advantage over the H100, but at about half the cost and with much less lag, it has AMD pretty well.

AMD isn’t the only outside competitor vying for data center real estate. With reports suggesting that Nvidia’s Blackwell chip will be delayed by at least three months due to design flaws and supplier constraints, tech mags Samsung and Huawei enters the picture with its own AI chips.

But wait — there are more.

Nvidia’s top four customers by net sales, who are all members of the “Magnificent Seven”, are also developing AI-GPUs for their data centers.

More than likely, these chips are unlikely to surpass the H100 or Blackwell based on computing power. But this will not stop Microsoft, Meta platforms, Amazonand Alphabet to complement the chips they purchased from Nvidia with in-house designed chips that will eventually be substantial cheaper and easier to access. Once again, we’re talking about Nvidia hardware losing out on valuable data center real estate.

The last piece of the puzzle

In addition to my prediction that Nvidia stock may be affected by competitive pressures over the next two years, the company will also have to contend with three decades of undefeated history when it comes to future innovations, technologies, and trends.

The past 30 years have seen no shortage of game-changing technologies and trends on Wall Street. The advent of the internet, genome decoding, business-to-business commerce, housing, Chinese stocks, nanotechnology, cryptocurrency, 3D printing, blockchain technology, cannabis, augmented/virtual reality, the metaverse, and now AI are just a few of these growths. -feeding trends.

With the exception of artificial intelligence, every other innovation, technology or trend of the past 30 years has navigated a bubble in its early stages. This nascent bubble is evidence that investors regularly overestimate how quickly new technologies and trends will be adopted at the consumer and/or enterprise level. When lofty goals are not met and the initial euphoria wears off, the bubble eventually bursts.

There is nothing to suggest that artificial intelligence is a mature technology. In fact, most companies do not have a clearly defined game plan on how AI will be used to increase their sales and improve their bottom line. This is all the evidence we need that the euphoria surrounding artificial intelligence has far exceeded the limits of reality.

If and when the AI ​​bubble bursts (which history suggests it will), no stock will be hit harder than Nvidia.

Although long-term investors in Nvidia will continue to be chargers if Nvidia pulls back 50%, 60% or even 80%, the next two years are shaping up to be challenging for Wall Street’s AI darling.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

Prediction: Nvidia Will Be Crushed By The Competition In The Next 2 Years — But Not For The Reason You Might Think Originally Posted by The Motley Fool