Nvidia stock remained under pressure this week as prominent investors Ray Dalio and Michael Burry warned that an AI bubble could burst. Shares also fell after Firmus pulled its IPO and as investors reacted to recent reports on OpenAI’s revenue. The stock now trades at $230, about 5.4% below its high for the year.
Firmus IPO and OpenAI revenue
Nvidia stock has retreated sharply as investors reacted to the ongoing crisis at Firmus, an Australian neocloud company that it has backed. The company decided to pull its IPO as investors balked at its hefty valuation.
Investors are also concerned about the ongoing weakness in companies like CoreWeave, Nebius, and IREN. Despite their strong revenue growth, these companies are losing millions of dollars and will need to raise more capital as the cost of data center buildup rise.
Meanwhile, investors are concerned about OpenAI, a company that Nvidia has invested billions of dollars in. A while ago, the company hinted that its revenue run rate was over $70 billion. Now, however, media reports suggest that the rate is about $20 billion below that level.
These numbers suggest that, while OpenAI is still growing, the trajectory is much lower than what analysts were expecting. As such, it might become more difficult for it to hit its valuation target after the Initial Public Offering (IPO).
There are also concerns about the artificial intelligence (AI) bubble. In a statement this week, Ray Dalio, the billionaire founder of Bridgewater Associates, said that the bubble will burst soon as US bond yields and interest rates rise.
Michael Burry, who is known for predicting the Global Financial Crisis, said that we are in the late stages of the AI bubble. He compared this to what happened in 2000 and 2008.
Nvidia’s business is doing well
Despite the doom and gloom, all signs point to Nvidia’s business is doing well. The most recent results showed that Micron’s revenue soared by over 300% in the fourth quarter of its fiscal year. Similarly, Taiwan Semiconductor and Samsung Electronics published strong earnings, suggesting that companies in the technology sector are still spending.
Nvidia’s earnings were also strong, with its revenue soaring to over $104 billion. It also predicted that its annual revenue for next year will jump by over 70%. Nvidia tends to be highly conservative when making its guidance, meaning that its real figure will be higher.
The company’s guidance did not include its potential Chinese business because of the ongoing jitters with the US. There is a possibility that the company will see strong demand from Chinese companies over time. Also, it is likely that Nvidia underestimated the potential demand for its CPUs. In a statement this week, Microsoft said that the new laptops using the chip were the most powerful in its lineup.
Analysts have a bullish outlook for Nvidia shares. The average estimate is that its stock will rise to $321, up by nearly 40% from the current level. Some of the most bullish analysts are from companies like BNP Paribas, Cantor Fitzgerald, Rosenblatt Securities, Piper Sandler, Needham, and Philip Securities.
Nvidia stock price technical analysis
NVDA stock chart | Source: TradingView
Technical analysis suggests that the NVDA stock price peaked at $243 earlier this week and then retreated for the last three consecutive days. It has now moved below the support level of $236, its previous all-time high.
The stock has formed a rising wedge pattern, which is a common bearish reversal sign in technical analysis. Also, the Relative Strength Index (RSI) has continued falling. It is also below the Strong, Pivot, Reverse level of Murrey Math Lines. Therefore, the stock may drop further as sellers target the Strong, Pivot, Reverse level of Murrey Math Lines at $212.
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