Nvidia Slides Further As Microsoft Signals Shift From AI Chip Shortages: Retail Waiting On Rebound

Nvidia shares slipped over 1%  in midday trading Tuesday, on track to extend losses for a fourth consecutive session but failing to dampen retail sentiment.

The stock’s slide comes as it continues to trade in correction territory, usually defined as a 10% or greater drop from a recent high. 

The dip occurred despite Nvidia introducing its Jetson Orin Nano Super, branded as the world's most affordable generative AI computer, earlier in the day.

The latest downturn was reportedly fueled by comments from hedge fund manager Doug Kass, founder of Seabreeze Partners Management, who pointed to remarks made by Microsoft CEO Satya Nadella on the BG2Pod with Brad Gerstner and Bill Gurley podcast. 

Nadella noted that Microsoft is no longer constrained by chip supply, a statement Kass interprets as a red flag for Nvidia.

“Apparently, they all got caught off guard in the beginning; nobody wanted to be left behind. They piled in with zero caution. These were big projects that are now largely completed,” Kass said in an email to clients, according to a MarketWatch report.

Kass argued that Microsoft’s shift away from chip shortages could signal tapering demand for Nvidia’s products. 

Currently, Nvidia earns nearly half of its revenue from just four customers. Microsoft is speculated to be one of these top customers, but the precise amount of revenue, specifically from the software giant, has not been revealed.

Kass explained that he’s skeptical about end-user demand, particularly for projects like Microsoft’s AI chatbot Copilot. Analysts have previously also raised concerns about the chatbot's revenue potential.

“Even if there were significant end demand for what these projects were selling, chip demand would have to taper just due to the math of getting the lump sum of projects first and then just followed by what underlying demand allows for,” he said.

Kass added that without booming end demand for the final product, it’s unlikely that Nvidia’s supply chain will sustain current levels.

Kass, who has written roughly 50 critical “Tales from Nvidia” columns, reiterated his bearish stance on the stock. He has maintained a short recommendation on Nvidia since early November.

Nvidia Sentiment and Message Volume on Dec 17 as of 12:10 p.m. ET | Source: Stocktwits

Retail sentiment around the stock improved to ‘extremely bullish’ from ‘bullish’ a day ago and chatter increased to ‘high’ levels.

According to a poll on Stocktwits, nearly 50% of respondents believe that the stock has bottomed out and should face resistance if it tries to push beyond $125. A decent portion also thinks that the stock could slip as far as $120.

Stocktwits Poll Asking, "Where Do You Think NVDA Will Bottom Out" on Dec 17 as of 12:10 p.m. ET | Source: Stocktwits

A user even pointed out that stocks within the semiconductor sector as a whole may be bottoming out. 

Others are using the price drop to ‘buy the dip’.

According to Koyfin data, Nvidia’s shares have now fallen 11.34% from their 52-week high closing price of $148.88, reached on Nov. 7. The stock is also down 13.66% from its record intraday high of $152.89, set on Nov. 21. 

This marks the second correction Nvidia has experienced this year. Despite similar dips over the summer, the stock rebounded strongly, driven by demand for AI chips.

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