As Wall Street and investors celebrate Nvidia Corp.’s NVDA stellar fourth-quarter results and anticipate continued outperformance, a fund manager raised a potential risk on Thursday regarding the AI giant’s overreliance on the rest of the Magnificent 7 companies.
Concerns Over Nvidia’s Dependency on Magnificent 7: Short-seller Jim Chanos, known for his Enron collapse prediction, commented on a post by X user @InvestRoiss about the sustainability of GPU spending by the Magnificent 7 companies.
The social media user speculated that the Nvidia customer contributing 19% to total revenue, procuring chips directly and indirectly, might be Meta Platforms. He estimated that $13.2 billion of Nvidia’s total revenue could have come from Meta, approximately 48.5% of the Mark Zuckerberg-led company’s total 2023 capex of $27.2 billion.
“Are we seriously projecting that Meta will continue to spend 48% of their total capex on GPUs? I press x to doubt,” he added.
Another X user suggested it was Microsoft, not Meta, contributing 19% to Nvidia’s revenue. Responding, @InvestRoiss stated, “Whether Meta or Microsoft was the 13 or 19% doesn’t matter. The question is, are we sure they gonna spend 50% in the next year on GPUs?”
Chanos interjected with his comment: “Just a friendly reminder that most of Mag 7 darling NVDA’s OCF is actually capex from other Mag 7 darlings.”
Nvidia’s remarkable growth since 2023, coinciding with the AI revolution’s onset, has captivated the Street. However, as discussions emerge regarding the duration of the prosperous times, investors and analysts contemplate the sustainability of Nvidia’s success.
As another X user noted on the thread, even if the Magnificent 7 companies slow down AI spending, other SMid-cap companies may compensate with accelerated spending. “Other companies will get in line — big, medium — as much as their cash allows,” they said.
Gene Munster of Deepwater Asset Management anticipates the AI boom will likely continue for another three to five years, although he cautioned that when the downturn arrives, it will be significant.
In premarket trading on Friday, Nvidia rose 2.03% to $801.30, according to Benzinga Pro data.