New Delhi. There was a tremendous rise in the shares of Nvidia for the last few months, but now a big selloff has shaken the market. Japan’s SoftBank Group has made a profit of about $6 billion by selling its entire stake in the company. Many questions are being raised in the market regarding this step, is this just profit booking or is this fast wave of Artificial Intelligence going to come to a halt.
SoftBank founder Masayoshi Son has been betting on the AI ecosystem for a long time. This deal made with Nvidia was also part of the same strategy. Till March, the company had a stake of about $ 3 billion in Nvidia, by selling which it earned a profit of $ 5.8 billion. Not only this, due to this profit and strong returns from Vision Fund, SoftBank recorded a net profit of $ 16.2 billion in the September quarter, which was several times more than the analysts’ estimates.
Softbank’s new gameplan
Masayoshi Son is now trying to bring SoftBank to the center of the AI revolution. The company has invested in giants like OpenAI and Oracle, which are growing rapidly due to AI server and cloud demand. SoftBank shares have jumped 78% in the last three months, which is the best performance since 2005. Son is now preparing for a new bet. Plans are underway to take a stake of up to $30 billion in OpenAI, a $20 billion AI data center project named ‘Stargate’, and a $1 trillion AI manufacturing hub in Arizona. The company is also eyeing the acquisition of Ampere Computing and Marvell Technology.
Warning bells for Nvidia?
Nvidia is still the frontrunner in the AI race. It has AI chip orders worth $500 billion for the next five quarters. But the question is whether this momentum will be sustained. The valuation of the company has reached 4.83 trillion dollars, which is more than the GDP of Germany. However, Nvidia’s business is still showing explosive growth, with second-quarter revenue rising 56% to $46.7 billion, and demand for data center chips continues to grow. Nevertheless, analysts believe that now the risk of overvaluation has increased.
AI boom or bubble?
Nvidia’s growth is considered a measure of the health of the AI industry, but the risks in this growth are also not less. Companies like Google, Meta, Microsoft and Amazon spent more than $360 billion on AI infrastructure last year, most of which went on Nvidia hardware. If generative AI does not generate as much revenue as expected, these expenses can be reduced immediately. An MIT study shows that 95% of AI projects fail, while according to reports OpenAI alone suffered an operational loss of $11 billion. In such a situation, only time will tell how sustainable the increasing stake on Nvidia will be.
What is the message for investors
Motley Fool analysts say that Nvidia’s fundamentals are still strong, but its future completely depends on the demand for AI. If AI spending by corporates slows down, the company’s earnings may also slow down. Therefore, taking entry in it at the current level is being considered a bit risky step. It is clear that this big selloff by SoftBank has signaled to the market that it would be wise to book profits in the next phase of AI rally. Nvidia may be the king of AI, but like every bull run, there is bound to be a twist.
