CALIFORNIA — The world’s most valuable chipmaker, Nvidia, delivered a stunning earnings report this week, but its financial triumph failed to fully put to rest persistent fears that the explosive growth in artificial intelligence (AI) is creating an unsustainable stock market bubble.
On Wednesday, Nvidia posted sales and profits up more than 60% year-on-year, comfortably surpassing Wall Street projections. CEO Jensen Huang declared that “sales are off the charts” and projected fourth-quarter revenue guidance of about $US65 billion ($100 billion), once again ahead of analyst expectations.
Despite these aggressive, positive results, the wider market remains unconvinced. After a brief uptick, Nvidia’s shares (NVDA) closed Friday down 1% for the week.
Nvidia executives argued the fears are overblown, pointing to the immense investment in AI infrastructure. CFO Colette Kress estimated that annual AI infrastructure spending will reach $US3 trillion to $US4 trillion ($4.65 trillion to $6.2 trillion) by the end of the decade, stating that demand “continues to exceed our expectations.” Tech giants are already forecast to pour $US400 billion into AI-related capital expenditures this year.
However, skeptics remain focused on underlying financial risks. Concerns center on the sustainability of the huge capital expenditure spree and the use of “circular funding deals,” where Nvidia invests in key customers like OpenAI and Anthropic, who in turn purchase its expensive GPUs.
The alarm was raised further this month when OpenAI CFO Sarah Friar suggested the government might need to backstop the debt tech companies are incurring for infrastructure, a comment the company quickly tried to walk back.
Daniel Morgan, senior portfolio manager at Synovus Trust Company, argued that Nvidia’s report only “punted” these core questions to the next quarter, signaling that the company has more work ahead to convince investors that the sector is headed for a boom, not a bust.
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