Nvidia, the semiconductor giant that has ridden the wave of artificial intelligence hype to dizzying heights, faced some skepticism from a high-profile investor last week. Cathie Wood, the founder and CEO of Ark Invest, revealed in a podcast interview that she has been gradually selling off her fund’s stake in Nvidia, citing concerns that investor expectations for the company may be getting “ahead of themselves.”
Wood’s comments came just days before Nvidia reported blowout quarterly earnings that sent its stock soaring yet again. But the star fund manager, who has built a reputation for her bold bets on disruptive technologies, said she has been trimming Nvidia from her portfolios due to worries about the stock becoming overvalued amid the AI frenzy.
I’ve watched Nvidia all my career actually since it’s gone public. It’s a very cyclical stock,” Wood told The Wall Street Journal’s Dion Rabouin in the interview aired on Sunday. It has become a check-the-box stock. It’s surprising hugely on the high side of expectations. And we do think that expectations could be getting ahead of themselves.”
Ark Invest, Wood’s actively-managed exchange-traded fund company, has sold over $4.5 million worth of Nvidia shares this year alone according to trading records. The sales represent a notable reversal, as Ark had previously been a loyal Nvidia backer, buying shares hand over fist during the pandemic pullback in 2020 when the stock was trading below $200.
Nvidia’s ascent since then has been nothing short of meteoric. Propelled by surging demand for its chips from cloud providers, data centers, and AI developers, Nvidia has seen its market capitalization soar past $1.8 trillion—eclipsing the valuations of corporate giants like Amazon and Alphabet. In the past year alone, Nvidia’s stock has gained over 400%, making it worth more than the entire Chinese stock market.
If AI is the next industrial revolution, then absolutely we could see Nvidia’s valuation surge continuing,” commented Kathleen Brooks of online broker XTB in an interview last week.
Certainly, few companies have benefited as directly from the AI boom as Nvidia. The company’s graphics processing units (GPUs), which excel at the complex mathematical calculations that power machine learning, have become the gold standard for the skyrocketing field of generative AI models like ChatGPT. Nvidia’s speciality semiconductors are in high demand for training and running these resource-intensive AI systems.
Nvidia has created the AI age in a sense,” Wood acknowledged to The Wall Street Journal.
But the Ark Invest CEO also expressed concerns that euphoric demand for Nvidia’s products could be leading to inventory issues down the road, as customers engage in “double ordering, triple ordering” and “hyperactivity” drives excessive chip stockpiling.
“Everyone’s excited, trying to get in at the same time,” Wood warned. “And then there is an inventory correction. We think that will happen again.”
Indeed, history shows Nvidia is no stranger to boom-and-bust cycles. It’s a very cyclical stock,” Wood emphasized, likely recalling past AI “winters” that saw investors flee semiconductor makers amid overblown hype and unfulfilled promises.
Nvidia representatives declined to comment on Wood’s remarks. But the company’s latest financial results, announced last Wednesday, only served to underscore its current dominance. Nvidia reported blowout earnings, sales and third-quarter revenue guidance that smashed expectations. The numbers sent its stock up another 7% in after-hours trading.
And yet, some experts believe the AI beneficiaries that have already seen their stocks rally sharply—companies like Nvidia, Microsoft, and Alphabet—may soon disappoint as the technology’s real-world impact takes time to materialize.
“The direct beneficiaries of AI will disappoint in the near term because its benefits may take time to trickle in,” said Jonathan Curtis, a portfolio manager at Franklin Equity Group, in an interview. Curtis estimates meaningful AI-driven revenue growth may not show up until 2024 or 2025 for many companies.
Rather than betting on companies like Nvidia that have already seen their valuations inflated by AI hype, some analysts urge investors to look instead at firms positioned to adopt AI technologies in the coming years to boost productivity and margins.
In a research note last month, analysts at Goldman Sachs identified 50 stocks across 15 industries that could experience large earnings boosts from AI-driven labor productivity gains between 2025 and 2030—gains the investment bank believes the market has not yet priced in.
AI automation is expected to increase labor productivity while easing expenses on wages, which would lead to better margins or increased revenue,” the Goldman Sachs note explained. The bank’s economists expect these potential productivity enhancements to reflect on corporate balance sheets within the next five to ten years.
Stocks highlighted in the report include retailers like Gap, restaurants like Domino’s Pizza, and insurance firms like Prudential Financial—companies that may be able to leverage AI automation to reduce labor costs and boost efficiency in the years ahead in ways that have not yet been fully anticipated by investors.
So while Cathie Wood and other fund managers elect to take some profits off the table when it comes to the first wave of AI-themed momentum stocks, a new cohort of potential winners may soon emerge as the technology penetrates the real economy. The initial AI exuberance on Wall Street could give way to a more nuanced, diversified view of which companies truly stand to benefit from this potent but still-nascent technology disruption.
