Nvidia's stock just dipped below $200 for the first time since April. It did that even though the company has an $80 billion buyback expansion and a 25-fold dividend increase. The contradiction? Investors are more worried about rivals than they are about Nvidia's own cash.
Thursday's close of $195.47 capped a four-day slide. The trouble started after a brief pop from Micron's strong earnings report. That optimism faded fast.
Micron is a memory-chip maker, not a direct Nvidia rival. But its report reminded investors that the chip market is crowded. Once the good feeling wore off, the selling resumed. Nvidia's stock is now down 13% from the $226 price that Barron's recommended on May 13.
Two big announcements made investors question Nvidia's lead in AI chips. First, OpenAI unveiled a custom AI chip designed with Broadcom. Second, Qualcomm inked supply agreements with both Microsoft and Meta Platforms.
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Those two huge tech customers are now buying AI chips from Qualcomm, not just Nvidia. It resembles a marketplace where a single vendor once held all the business; now competitors have opened shop, and some longtime customers are giving them a try.
Nvidia still holds the best product for many AI tasks, and several large technology firms have already pledged to adopt its upcoming Vera Rubin hardware. However, the belief that Nvidia is the only viable supplier for AI chips is showing cracks. Market participants will probably hold off on enthusiasm until they can confirm whether Nvidia can defend its market share.
Nvidia has long dominated the AI chip market due to its powerful GPUs and the robust CUDA software ecosystem, which developers rely on for training large language models. Its upcoming Vera Rubin hardware is expected to maintain that edge. Still, the recent moves by OpenAI and Qualcomm signal that major tech firms are exploring alternatives, potentially reducing their dependency on Nvidia. The company's massive buyback program and dividend hike reflect confidence in its cash flow, but the competitive landscape is undeniably shifting.
The company has a very large stock buyback program. In total, Nvidia has roughly $118 billion in active, open-ended buyback capacity. That means management can buy its own shares when the price falls, which can support the stock.
Yet even a huge buyback and a fat dividend cannot erase competition fears overnight.
Barron's named Nvidia a stock pick on May 13 at $226. That's a big swing for a pick that looked solid just a few weeks ago.
The buyback and dividend increases signal that management expects strong cash flow to persist, but the emergence of rival chip options introduces a level of uncertainty that no share repurchase program can instantly resolve.
Despite the recent stock decline, Nvidia's fundamentals remain strong. However, the emergence of capable alternatives from OpenAI, Broadcom, Qualcomm, and major customers like Microsoft and Meta introduces a new dynamic that investors will watch closely.
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