As the leader in AI hardware, NVIDIA’s (NASDAQ:) stock price has hit consecutive highs and has nearly tripled this year. Wall Street analysts are generally optimistic about it.
But that doesn’t mean there are no investors questioning Nvidia at all.
In the latest interview, fund manager Terry Smith, known as the “British version of Buffett”, was skeptical.
He thinks,Nvidia lacks a strong track record of predictable earnings streams and high returns on capital.
Smith revealed that he has avoided Nvidia, but he also acknowledged that such a move would weaken the performance of his portfolio.
Worry about AI revenue and competitors
Terry Smith is pessimistic about the future of artificial intelligence. He pointed out:
“I’m not sure we know what the future of artificial intelligence is,Because there are almost no apps that people are willing to pay for. “
“Are they willing to pay a high enough amount and price to justify that? Because if not, wafer suppliers will be in trouble. ”
His caution taps into one of the biggest concerns about the future of the artificial intelligence industry:Will the revenue generated by AI technology ultimately justify the billions of dollars invested by companies like Microsoft?
These doubts led to Nvidia’s sell-off some time ago. Its stock price fell by a maximum of 35% from the high point in June to the low point in August, and its market value also evaporated by approximately US$900 billion.
However, Nvidia’s share price subsequently rebounded by more than 60%, with the stock price reaching new highs. It closed at US$147.63 per share on Monday, with a total market value of US$3.62 trillion.
Some AI believers point out that Nvidia’s largest customers, including Microsoft and Google, have committed to increasing capital expenditures after investing a record $59 billion in data center equipment and other fixed assets in the third quarter.
As tech companies continue to increase spending on AI to keep pace with competitors,Nvidia’s net profit margin is expected to reach 56% in fiscal 2025.
In this regard, Smith believes that such high profitability may not continue.
He also cited pressure from competitors: “Even if artificial intelligence is the next big thing and we’re going to pay enough to justify it,Will there be only one manufacturer of these wafers? ”
He believes: “If you have good returns, you will attract competition. In fact, if you look at Nvidia’s customers, such as Microsoft, Amazon and Oracle, you will find that they all have a history of developing their own wafers. “
Fund performance lags
It should be noted that the Fundsmith Equity Fund managed by Smith has returned 9% in dollar terms this year, lagging the MSCI Developing Markets Equity World Index, which has gained nearly 20%.
In this regard, he said that the main reason for the poor performance of the fund was “the concentration of performance of a few stocks.” And the growing popularity of index funds is fueling this trend.
In a previous interview with the Financial Times, Terry Smith talked about the reasons why he chose not to hold the star stock Nvidia. He believed thatIt’s not predictable enough.
He also revealed that Fundsmith does not invest in Amazon and has very little investment in Apple. However, Fundsmith does invest in companies that benefit from current AI trends, such as Microsoft and Google.
Smith said he likes companies that supply products directly to consumers, rather than companies that supply products upstream in the supply chain. “There is only one thing more dangerous than being close to consumers, and that is not being close to consumers.”。
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