Amid the celebration of Nvidia Corp.’s NVDA stellar fourth-quarter results, a potential risk was raised by a fund manager regarding the AI giant’s reliance on the rest of the Magnificent 7 companies.
Nvidia’s Dependency on Mag 7: Short-seller Jim Chanos, known for his accurate Enron collapse prediction, commented on the sustainability of GPU spending by the Magnificent 7 companies.
There was speculation that a significant portion of Nvidia’s revenue, approximately 19%, might come from Meta Platforms, raising concerns about the sustainability of such a high level of GPU spending by the company.
Another user suggested that it was Microsoft contributing 19% to Nvidia’s revenue. Regardless of the company, the key question remains whether these entities will continue to spend at the current rates on GPUs.
Chanos pointed out that the majority of Nvidia’s operating cash flow is actually capital expenditure from other Magnificent 7 companies, providing a cautionary note amidst the optimism.
Nvidia’s remarkable growth since 2023 has captivated the Street, but discussions are now focusing on the sustainability of its success and the potential impact of a slowdown in AI spending by its key customers on the company’s performance.
Some voices in the market believe that even if the Magnificent 7 companies slow down AI spending, other smaller to mid-sized companies may increase their spending to fill the gap, sustaining demand for Nvidia’s products.
Gene Munster of Deepwater Asset Management anticipates the AI boom will likely continue for another three to five years, with a significant downturn expected when it arrives.
In premarket trading on Friday, Nvidia rose 2.03% to $801.30, according to Benzinga Pro data.
