Nvidia reports on Wednesday.
We head into this report with some perceived gaps having been exposed in the Nvidia armor in the past month.
The "DeepSeek moment" revealed that the large language models can be improved upon, advancing the capabilities of generative AI, without requiring more computing capacity. So, maybe AI leadership isn't determined by who gets access to the most Nvidia GPUs?
If that were the case, the hyperscalers (Amazon, Meta, Google, Tesla, Apple) would have flinched.
We heard from them all earlier this month.
They didn't flinch.
Instead, they are all pressing the accelerator. If we combine the planned capex spending for 2025, guided by Microsoft, Meta, Google, Tesla, Apple and Amazon — it's over $300 billion. It's huge growth in spend from 2024 — about $100 billion more.
But as we've discussed for many quarters now, it's not a demand issue for Nvidia, it's a supply issue.
And the clues have been in the Nvidia datacenter revenue growth. It's a $4 billion drumbeat.
You can see it here (quarter-to-quarter change within the green box) …
If they maintain the $4 billion quarterly growth through 2025, and deliver everything to the American hyperscalers they still fall short of demand by $100 billion.
And stable new revenue dollars every quarter means the growth rate trajectory for Nvidia is down.
At $4 billion a quarter, the year-over-year growth rate falls to under 50% by the second half of 2025.
Now, a little less than 50% growth is still a big number, but the market has already begun to reconsider the valuation.
As you can see in this next chart, the stock put in a top after Q3 earnings last November. The largest company in the world then proceeded to whipsaw in an 8% range that day (a $300 billion valuation swing).
And then a new top was just barely printed early last month after Jensen's keynote at the CES conference in Las Vegas. And then we had this gap lower on the DeepSeek news. The gap has since filled, heading into Wednesday's earnings.
Assuming neither Nvidia nor Taiwan Semiconductor has identified new manufacturing capacity, this chart looks likely to resolve in the direction of this January gap, lower.
That said, the AI revolution is real and well intact. And a correction in the AI-theme would be a welcome buying opportunity.