Should Nvidia Investors Be Nervous About This Red Flag?

Right now, Nvidia’s GPUs are the go-to option for nearly every AI developer — so much so that businesses are willing to pay significantly more for Nvidia chips than they are for competing options. That’s great news for Nvidia, considering it’s experiencing rising volumes and rising pricing power just as AI infrastructure spending takes off.

But as with previous chip wars, competition is strengthening. Intel is investing billions into its Gaudi 3 and Falcon Shores chips, which recently showed comparable performance to Nvidia’s H100 models. And AMD’s MI325X chip, launching later this year, can handle most AI applications under development today. Meanwhile, a host of private start-ups, like Cerebras and SambaNova, are taking unique approaches to AI GPUs that could eventually render Nvidia’s current approach obsolete.

While Nvidia’s lead and pricing power won’t disappear overnight, rising competitive pressures — and the R&D spending of rivals — lead me to one simple investment strategy: Don’t put all of your eggs in one basket. Most investors betting on Nvidia today are betting on the rise of AI spending, not necessarily on Nvidia’s long-term ability to retain its competitive advantages.

If that includes you, don’t be afraid to allocate some of your capital to out-of-favor chip stocks, like Intel and AMD, which are spending billions to support future launches that may still be years away. Even if 90% of your AI investment is focused on Nvidia, diversifying your portfolio with other chipmakers ensures that no matter where the competitive winds shift, you’ll be in a position to profit from rising AI demand, one of the biggest growth opportunities so far this century.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Should Nvidia Investors Be Nervous About This Red Flag? was originally published by The Motley Fool