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We came across a bullish thesis on NVIDIA Corporation (NVDA) on Substack by Charly AI. In this article, we will summarize the bulls’ thesis on NVDA. NVIDIA Corporation (NVDA)'s share was trading at $128.99 as of Jan 28th. NVDA’s trailing and forward P/E were 50.92 and 30.12 respectively according to Yahoo Finance.
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NVIDIA, a leader in graphics processing units (GPUs) and AI hardware, has long been at the forefront of the technological revolution in gaming, AI, and high-performance computing. Known for its pioneering CUDA platform, NVIDIA has cemented its position as the go-to company for AI development, providing essential tools for training deep learning models and powering data centers worldwide. The company’s GPUs, particularly its H100 and A100 models, are critical to training large language models (LLMs) and supporting the heavy computational demands of AI, data analytics, and gaming applications.
However, as AI becomes more widespread, NVIDIA's stronghold is being challenged. The rapid rise of open-source AI models, like DeepSeek’s R1, has introduced a new dynamic in the industry. These models can be run on local hardware or rented through third-party providers, drastically reducing the cost of inference, which is now seen as more important than training. With open-source models offering superior performance at a fraction of the price, the economic moat that NVIDIA once enjoyed is eroding, particularly as AI labs and smaller players increasingly turn to cheaper, more efficient alternatives.
NVIDIA’s current model relies heavily on high-margin GPUs, and the increasing competition from companies like AMD, Google, and Intel, who are developing specialized chips for AI workloads, poses a threat. AMD’s MI300X, for example, is already optimized for open-source models like DeepSeek R1, providing a cheaper alternative to NVIDIA’s high-end GPUs. This new wave of chipmakers, along with the growing demand for cost-effective inference, could force NVIDIA to adapt its pricing strategies and hardware offerings, which may impact its margins and overall growth trajectory in the short term.
Despite these challenges, NVIDIA’s long-term prospects remain strong. Its CUDA platform, which is integral to the development of AI models, robotics, and self-driving cars, continues to be a key differentiator. There’s no direct alternative to CUDA at scale, and its ubiquity in AI development ensures that NVIDIA remains a foundational player in the AI ecosystem. While its margins may face pressure in the short term due to competition and changing market dynamics, NVIDIA’s critical role in AI development means it will likely continue to dominate the market for years to come. However, with stock prices currently at elevated levels, investors may want to consider the potential risks and opportunities before making long-term investment decisions, especially in the face of growing competition and shifting market forces.