CASE STUDY
A case study on Nvidia: Was it too little, too soon?
Problem statement:
Nvidia, the top AI chipmaker, posted stellar results—sales up 122%, profits doubled, and a
strong forecast ahead. Yet, despite these remarkable achievements, the stock plunged by 9.5%
on September 3, 2024. For a company that's soared 3,000% in five years and hit a $3 trillion
valuation, this dip raises a bigger question: Is the AI frenzy losing steam, or did Nvidia’s own
hype set expectations so high that even great wasn’t good enough for Wall Street?
Background
Nvidia, once known primarily to tech enthusiasts and gamers for its powerful GPUs,
experienced a dramatic shift in fortune. Originally celebrated for enhancing computer graphics,
its chips were soon recognized as crucial for AI computations. Nvidia's strategic move into AI
propelled it to become the world’s most valuable company, briefly surpassing even Microsoft.
The launch of ChatGPT further fueled Nvidia’s success, causing its stock to skyrocket by 239%
in 2023. CEO Jensen Huang emerged as a prominent figure in tech, with Nvidia’s GPUs
becoming essential to the AI revolution.
Experts highlight Nvidia’s essential role in the generative AI sector, likening its chips to a crucial
resource like oil. Companies have eagerly paid between $30,000 and $40,000 per chip, leading
Nvidia to achieve record revenues of $30 billion in a single quarter. This success contributed to
a remarkable 591,000% surge in its stock price from its IPO in 1999 to its peak as the world’s
most valuable company.
However, Nvidia now faces significant challenges. Recent geopolitical tensions, legal issues,
and fears of an “AI bubble” have introduced uncertainty about its future. On September 3, the
company suffered its largest-ever single-day market value drop, with $279 billion evaporating in
hours. Despite its past success and the pivotal role its technology plays, the dramatic decline in
Nvidia’s valuation remained a pressing question.
Should the AI bubble-burst be blamed?
As the initial excitement surrounding AI started to fade, markets are reassessing the
technology's true value and revenue potential. Innovations like ChatGPT and Google Gemini,
while notable, have not lived up to the groundbreaking expectations initially set. This shift in
sentiment has led some to speculate that the AI bubble might be bursting.
And now, Nvidia is experiencing a significant drop in its stock value. While this decline can be
partly attributed to the cooling of AI enthusiasm, it is not the sole factor. Nvidia's chips are
crucial for a range of applications beyond AI, including ad-targeting systems and
recommendation algorithms. The company's substantial revenue growth reflects this broad
utility.
However, the recent plunge in Nvidia's valuation is influenced by more than just the AI bubble.
Geopolitical tensions, legal challenges, and the potential rise of competitors developing their
own AI chips are also contributing to the uncertainty. Thus, while the AI bubble burst is partly
responsible for Nvidia’s stock drop, it is one of several factors affecting the company’s market
performance.
So, did the over-enthusiastic PR went wrong for Nvidia?
In its fiscal 2025 first-quarter update, Nvidia set ambitious targets, forecasting $28 billion in
sales for the second quarter, signaling an astounding 107% annual growth. The company also
projected its gross margin to hit 74.8%, impressive by any standard. Wall Street, however, was
even more bullish, expecting Nvidia to pull in $28.6 billion in sales, pushing expectations even
higher.
Nvidia's consistent track record of beating forecasts had built a reputation for delivering big, but
the company’s own optimistic PR contributed to setting an incredibly high bar. Nvidia found
itself at the center of AI events hosted by giants like OpenAI, Google, and Microsoft. In May
2024, OpenAI’s technology chief publicly thanked CEO Jensen Huang for supplying the
advanced chips critical to their AI advancements. At Google’s annual developer conference,
CEO Sundar Pichai praised the “longstanding partnership” with Nvidia, announcing that Google
Cloud will use Nvidia’s 'Blackwell' chips starting in early 2025. Amazon’s cloud services division
also revealed it would purchase the new 'Blackwell' chips while continuing to order Nvidia's
most advanced offerings.
This intense spotlight and constant PR triumphs helped solidify Nvidia’s dominance, but it also
built immense pressure. Investors came to expect nothing short of perfection, anticipating
continuous outperformance. However, in the stock market, success can breed its own downfall.
As Nvidia’s optimistic projections and high-profile partnerships continued to raise investor
expectations, the stakes only grew higher.
The problem with such consistent outperformance is that investors demand even more.
Nvidia's streak of "beat and raise" results led to ever-rising expectations, fueled by its own
bullish messaging. But eventually, the weight of these expectations caught up. When Nvidia
couldn’t quite match the sky-high predictions it had helped create, its stock took a hit. Despite
its essential role in AI’s infrastructure and growing partnerships, Nvidia's optimism contributed
to the plunge, as the question remains whether it can continue to meet—and surpass—its own
lofty projections.
Conclusion
The recent plunge in Nvidia’s stock, despite its remarkable growth and critical role in the AI
sector, highlights a deeper issue beyond just AI enthusiasm. While skepticism is growing about
whether the AI frenzy is sustainable or if it has peaked too soon, the drop in Nvidia’s valuation
can’t solely be attributed to an AI bubble burst. Yes, cooling AI hype is partly responsible, but
Nvidia’s own optimistic PR and sky-high investor expectations amplified the impact.
The company’s record-setting performance and dominance in AI technology raised the bar to
such an extent that even stellar results seemed insufficient. Geopolitical tensions, legal issues,
and rising competition further added to the uncertainty surrounding Nvidia's future. The
dramatic dip reflects a combination of cooling market enthusiasm for AI and Nvidia’s struggle to
continuously outperform its own lofty projections, rather than just the bursting of an AI bubble.
Nvidia’s story serves as a lesson in managing expectations. While innovation and bold
marketing can propel a business to great heights, overpromising can create immense pressure
to consistently deliver, which isn’t always sustainable. Entrepreneurs should focus not only on
growth but also on long-term resilience. Building trust with investors and stakeholders through
balanced expectations is crucial for navigating market fluctuations. The ability to adapt to
shifting demands, coupled with maintaining realistic goals, can prevent the kind of volatility
Nvidia is experiencing.
