In the midst of the so-called AI revolution, Nvidia’s 90 percent market share of advanced AI chips led it to become the largest company in the market earlier this summer. That dominance was underscored by news earlier this week that the U.S. Department of Justice sent subpoenas to Nvidia and other companies to help determine if the company violated antitrust laws.
But as dominant as Nvidia seems today, its dominance may not last, regardless of the DOJ probe. “Competition is coming,” says JPMorgan Asset Management’s Michael Cembalest, chairman of market and investment strategy, in a new “Eye on the Market” report.
Moreover, he argues that “A lot of the AI revolution appears to be priced into the equity markets.”
After Bloomberg reported the U.S. probe and Cembalest’s report — among other critical analyses — was released Tuesday, Nvidia lost $279 billion in a market rout.
In his report, Cembalest points out that several semiconductor companies, cloud service providers, and other AI application developers are ramping up to take market share from Nvidia.
AI accounted for 40 percent of all new unicorns in the first half of 2024 and 60 percent of the increase in VC-backed valuations, which grew by $162 billion during the same time period, according to PitchBook. But the losses for these companies could be staggering. The biggest one, OpenAI, could lose $5 billion this year, The Information reported.
Among the competitors, AMD has already developed chips and its own software to compete with Nvidia, says Cembalest. Meanwhile Intel is designing a chip that will be 1.5 times faster than Nvidia’s H100 chip — its main product — and 30 percent to 60 percent cheaper. Intel also is working with Google, Qualcomm, and others to develop a competitor to NVIDIA’s software.
And cloud service providers, including Amazon, Google, Microsoft, and Apple, already offer cheaper products.
“Nvidia and its GPU customers are now a large driver of equity market returns, earnings growth, earnings revisions, industrial production, and capital spending,” acknowledges Cembalest.
The question now is whether Nvidia — and AI mania — has peaked. “For one brief single day in June 2024, Nvidia attained the largest market cap in the S&P 500 at $3.33 trillion, surpassing Microsoft,” explains Cembalest.
He says most past market leaders have hit an “inflection point” and then declined as a share of the market. He names GM, IBM, Algria, Cisco, GE and Exxon as ones that have since lost their lofty positions. Only Microsoft and Apple have continued to “thrive,” he notes.
Nvidia shares have fallen about 19 percent since their peak in June.
McKinsey has projected that AI will contribute about $8 trillion to the global economy each year. But Cembalest appears skeptical. “For adequate returns on AI infrastructure to materialize, within the next 12 to 18 months we will need to see a greater shift in favor of “inference” tasks (AI used to run production models for corporate customers) rather than GPU capacity primarily being used to train foundational models and chatbots,” he says.
That said, the AI revolution has been good for consultants, says Cembalest. He notes that Boston Consulting Group now earns 20 percent of its revenue “helping large companies figure out what to do with generative AI.”
