Nvidia (NASDAQ: NVDA) stock will likely swing wildly one way or the other when the artificial intelligence (AI) chipmaker reports its second-quarter (Q2) results on 28 August. I doubt the response will be muted.
While the share price has fallen more than 20% in less than a month, all signs point towards another great quarter. Every time the firm’s reported one of these, the stock’s surged to a fresh record high.
However, there’s currently a tech stock sell-off gathering pace. So should I invest now or not?
Continued spending
Encouragingly for Nvidia, there doesn’t appear to be any slowdown in AI spending, at least according to recent earnings from the tech giants snapping up its chips by the boatload.
Meta Platforms plans to spend about $38.5bn in 2024 on AI infrastructure.
Alphabet expects to splash out another $12bn or so in the next two quarters, which will be “predominantly driven” by AI investments.
Amazon CEO Andy Jassy said: “We are investing a lot across the board in AI and we’ll keep doing so as we like what we’re seeing”.
Tesla CEO Elon Musk recently lamented that “demand for Nvidia hardware is so high that it’s often difficult to get the GPUs”.
Microsoft just reported $19bn in capital expenditures in the last quarter.
Needless to say, all this spending bodes well for Nvidia’s Q2 numbers on 28 August and probably Q3 too. Therefore, it wouldn’t surprise me to see the stock bounce back strongly once markets stabilise.
Amara’s Law
However, I’m a long-term investor who buys stocks with a minimum holding period of five years in mind. And right now, I have absolutely no idea what AI spending will look like in 2029.
If it’s far less than today, then I expect Nvidia’s market-cap and share price will reflect that. On the other hand, spending could head higher but Nvidia sells less chips due to more competition.
All this brings to mind ‘Amara’s Law’, which came from Roy Amara, the Stanford computer scientist. He said: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”
Like the internet, AI will almost certainly transform the world in the long run. But we may be overestimating the technology’s impact right now. An AI bubble might be popping. This is the worry I have.
The trough of disillusionment
According to the Gartner Hype Cycle, the adoption of new technologies (like AI) follows five phases:
Innovation Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightenment
Plateau of Productivity
The innovation trigger was the release of ChatGPT in late 2022. We may already have hit the peak of inflated expectations. One fund manager, for example, recently said that Nvidia could reach a $50trn market-cap!
Nobody knows when the so-called trough of disillusionment will come. But more analysts are questioning the return on investment in the AI space, so I reckon it’s in the post.
If Nvidia’s value keeps falling because investors become disillusioned with AI, then I’d consider investing due to the firm’s incredible innovation and world-class management team. But I don’t think we’re in the trough yet.
So in the meantime, I’ll buy other stocks while watching from the sidelines.
The post Should I buy Nvidia stock before 28 August? appeared first on The Motley Fool UK.
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More reading
Would I be crazy to buy more Nvidia stock today?
Down 6% last month! Is it time to sell my Nvidia stock?
Forget Nvidia: 1 stock down 19% to buy for the artificial intelligence (AI) revolution
Will the stock market crash in August?
What on earth’s going on with the Nvidia share price?
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Alphabet and Tesla. The Motley Fool UK has recommended Alphabet, Amazon, Gartner, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
