Nvidia’s Rise May Be Its Downfall: The Contrarian Case for Selling NVDA Now

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Nvidia (NASDAQ:NVDA) stock today is like no stock I have ever owned, even Amazon (NASDAQ:AMZN). It can’t be going up this fast for this long, but it is. I remember debates like that and stubbornly bought Amazon at $300/share.

I did the same some years later, picking up NVDA stock around $200. Two good decisions can make up for a lot of bad ones. But I don’t own as much Amazon now, it’s too big a portion of my retirement account. I might like to step off the Nvidia train, too. I just haven’t.

Has NVDA Stock Peaked?

Nothing keeps growing exponentially forever. Even Amazon’s growth has slowed. When will Nvidia’s? Its most recent earnings release, net income of $14.9 billion, $5.98 per share and revenue of $26 billion, set off yet another frenzy. Just since May 22 it’s up 28%.

This has added over $850 billion to the company’s market cap. It passed Apple (NASDAQ:AAPL) on June 5. By the time you read this, it may well be #1, passing Microsoft (NASDAQ:MSFT). Nvidia will also undergo a 10:1 stock split today. This means if you have 100 shares today, you’ll have 1,000 on Monday, at about $200 each.

It’s this kind of action that had Nvidia CEO Jensen Huang being treated as a rock star in Taipei last week, dramatically overshadowing fellow native Lisa Su, CEO of Advanced Micro Devices (NASDAQ:AMD).

Huang now has the confidence to deliver product ‘road maps’ three years out, as Intel (NASDAQ:INTC) did decades ago, knowing the industry will plan around them.

Why Get Out?

But there is a quiet backlash growing against what Nvidia is doing.

Huang says Moore’s Law is dead because Nvidia’s price-performance is increasing well ahead of what Moore’s Law could predict.

To accomplish this, however, Nvidia is rewriting rules around chip design. A single Blackwell chip will draw 1,875 watts of power. That’s nearly twice what the current Hopper chips consume.

That means 1 million Blackwell chips, which Nvidia plans to produce, will be drawing twice the power of a nuclear power plant.

The capability of Nvidia hardware is also off the charts. A single server rack equipped with Blackwell chips will deliver 1.44 ExaFlops of performance. An ExaFlop is a quintillion, 1 followed by 18 zeros.

That means a single server rack can do the work of an entire data center. In practical terms, it means the clouds are obsolete. Anyone can have one. When Elon Musk diverted a $500 million Nvidia order from Tesla (NASDAQ:TSLA) to his X service, he was grabbing a cloud data center.

The Bottom Line

That giant sucking sound you hear is the world’s wealth, and the world’s energy, flowing into Nvidia data centers.

It’s too much.

The last decade’s cloud systems were built with energy consumption in mind. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) made it a practice to recycle the energy it used for things like water treatment. Microsoft and Amazon planned renewable energy projects around their cloud energy needs.

Nvidia is blowing all this up.

Nvidia is also well ahead of what software can do. Funding for generative AI startups is starting to dry up. Even the Cloud Czars are unclear how they’ll get their money out from AI.

The current mania, like all such mania, will end. I wish I could tell you when that will happen. I can’t. It probably won’t be this quarter or even the next.

But you might want to lighten up on your Nvidia holdings before it happens. The company and the AI industry are on an unsustainable path.

As of this writing, Dana Blankenhorn had a LONG position in NVDA, AMZN, MSFT, INTC, and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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