When NVIDIA is "militarized," do Wall Street's high expectations still hold?
NVIDIA's stock price suffered a sharp decline, plummeting 10% at one point during the trading session and closing down 6.9%, with a market value evaporating by over $180 billion. This drop was attributed to the company setting aside $5.5 billion for its H20 product, impacting its ability to exceed Wall Street expectations. Analysts pointed out that NVIDIA may face challenges similar to those of defense contractors, with future revenues affected by geopolitical factors, losing control over the flow of high-profit chip sales
Overnight, NVIDIA faced a fierce sell-off, plunging 10% at one point during the session and closing down 6.9%, marking its largest single-day drop since January, with a market value evaporating by over $180 billion in one night.
The trigger for this sharp decline was that NVIDIA previously announced a provision of $5.5 billion for its H20 products in the first quarter. According to UBS analyst Tim Arcuri, inventory costs indicate that the actual sales of H20 are about $13 billion.
This directly threatens NVIDIA's ability to continue exceeding Wall Street expectations. Over the past three years, NVIDIA has significantly outperformed expectations each time, and investors expect a 56% revenue growth for NVIDIA this fiscal year, with the company set to announce its first-quarter results in late May. FactSet estimates that NVIDIA's data center revenue for the fiscal year ending in January was about $115.2 billion, with sales expected to reach approximately $182 billion this year.
It's not just a short-term financial shock; more importantly, this could change NVIDIA's operating model. Investment analyst @onechancefreedm on X pointed out that like military contractors, NVIDIA will lose control over the flow of its high-margin chip sales, and future product releases will be influenced in real-time by geopolitical factors.
NVIDIA's future financial situation may no longer be entirely under the company's control, and strategic delays will define its valuation. The challenges NVIDIA may face in the future lie in how to quickly redeploy its products under conflict conditions.
NVIDIA May Become "Militarized," Losing Control Over Revenue
In the past two years, NVIDIA's valuation has surged significantly, primarily based on its nearly uncontested dominance in the AI chip market and strong revenue growth. However, the provision for the H20 chip may signal the company entering a new phase, where the timing and amount of revenue recognition will be partially constrained by external factors.
An investment analyst on social media X, @onechancefreedm, pointed out that NVIDIA now faces a dilemma similar to that of defense contractors, with future challenges revolving around how its technological advantage can quickly redeploy its products under conflict conditions.
- Loss of Revenue Control
NVIDIA can no longer control the destination of its high-margin chips, and future product lines will be influenced in real-time by geopolitical factors. This is akin to a defense contractor needing to obtain approval from the State Department to deliver innovative products.
- Inventory Risks and Operational Model Vulnerability
The $5.5 billion expense in the first quarter reflects not only sales losses but also sunk production costs, contract buybacks, and reserve impairments. NVIDIA now faces the risk of inventory becoming obsolete due to geopolitical policies, a risk that cannot be hedged through traditional corporate tools.
- Strategic Delays Define Valuation, From Business Dominance to Restricted Hegemony
As outlined in the U.S. Department of Defense's strategic delay red, white, and blue framework, a technology company's true strength lies not in its current output but in whether that output can be rapidly redeployed under conflict conditions. The challenges NVIDIA may face in the future revolve around how its technological advantage can quickly redeploy its products under conflict conditionsNVIDIA's chips are crucial for military ISR, autonomous systems, cryptanalysis, and battlefield artificial intelligence. It has officially become part of the U.S. defense industrial system, whether it wants to or not.
NVIDIA's ecosystem (CUDA, DGX, H100/H20 architecture) serves as the command and control system for global AI development, leading to protocol divergences between Western and Eastern AI architectures. This is intentional and represents a "digital Maginot Line" in the AI arms race.
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