Nvidia's explosive growth faces imminent slowdown

In the past few years, Nvidia has experienced remarkable revenue growth rates exceeding 80% annually, including over 100% growth last year. This phenomenal success has primarily been driven by large tech companies like Microsoft, Google, Meta, and Amazon, each spending tens of billions on Nvidia's chips. However, as these companies see their own revenues growing at a much slower pace of about 15%, experts are questioning the sustainability of Nvidia's high growth rate. It's expected that these tech giants will not be able to sustain doubling their spending on Nvidia chips in the coming years. The broader economic landscape poses additional challenges for Nvidia. Factors such as tariff concerns and specific issues regarding the H20 chips have already contributed to substantial volatility in Nvidia’s stock price. A striking example occurred during the inflation shock of 2022 when Nvidia's stock plummeted by 66%, significantly more than the 25.4% decline of the S&P 500 index. This indicates how sensitive Nvidia's stock is to changes in market conditions and growth projections. Looking ahead, there are concerns that the AI boom, which has been a significant driver of Nvidia's growth, may not sustain its momentum. Recently, demonstrations by competitors, such as DeepSeek, have shown that smaller AI models can perform similarly without relying on Nvidia's latest chips. This poses serious questions about the necessity of Nvidia’s high-end offerings and signals potential competition emerging in the market. In light of these factors, it is suggested that Nvidia's growth could decelerate to rates of 60% or even as low as 40%. The rapid expansion that Nvidia has enjoyed is likely to conclude soon, leading to a drop in its valuation. Therefore, investors are advised to consider building a resilient portfolio that balances risk and reward against Nvidia's potential future performance, as evidenced by the successful Trefis High Quality portfolio, which has outperformed major indices by achieving over 91% returns since its inception.