The "surprise" sentiment has faded, and investors urgently need to see substantial evidence of AI advancements from tech giants

NVIDIA's consecutive nine quarters of exceeding expectations are losing their luster, as tech giants face immense pressure to translate AI promises into actual performance. Supply chain constraints, infrastructure bottlenecks, and signs of slowing growth are testing investors' confidence in the AI boom.

Although NVIDIA's latest quarterly performance still exceeded analyst expectations, it marks the smallest beat in nine quarters since the AI boom propelled the company to unprecedented heights. The company's stock price fell about 6% after the earnings announcement. Meanwhile, tech companies like Apple and Oracle will be in the market spotlight today, as investors eagerly await substantial returns on AI investments.

NVIDIA's annual revenue growth rate slowed to 56% in the latest quarter, the slowest growth in over two years. Supply chain constraints and insufficient power infrastructure are becoming structural factors limiting further explosive growth. If analysts' predictions are accurate, growth in the current quarter will further slow.

Additionally, Apple faces greater pressure to showcase its AI strategy progress at today's product launch event. Since the end of July, the company's market value has increased by $430 billion, but investors question whether its relatively lagging position in AI can support such a high valuation.

NVIDIA's Growth Trajectory Returns to Reality

The "stunning" quarterly performance that shocked the world two years ago from NVIDIA is unlikely to reappear anytime soon. In May 2022, the company forecasted quarterly revenue of $11 billion, exceeding analyst expectations by 53%, followed by a series of sales and profit surges.

The latest quarterly data shows a significant slowdown in growth. Although sales still exceeded analyst expectations, this is the narrowest beat in nine quarters since the AI boom.

Furthermore, the law of large numbers partially explains this phenomenon— the larger the scale, the more difficult it is to maintain the same rapid growth.

A more important structural reason is supply chain constraints. UBS analysts pointed out that NVIDIA's latest quarter "supply" metric (the sum of inventory and supply commitments) rose from about $41 billion in the previous quarter to about $45 billion. Analysts stated that this data "tells us that supply seems sufficient to support reasonable revenue growth, but does not indicate that revenue will experience significant 'hockey stick' growth."

Dual Challenges of Supply Chain and Infrastructure

Nearly all of NVIDIA's AI chips are produced by TSMC, then packaged into complex configurations and inserted into increasingly sophisticated computing systems. CEO Jensen Huang stated in March that there are about 600,000 components in the company's largest AI computing system, with future systems expected to contain 2.5 million parts.

In a company meeting in June, Jensen Huang mentioned that as long as demand can be forecasted to suppliers, the supply of NVIDIA's current systems "is not particularly difficult to obtain," but challenges still exist. He said, "Supply is constrained, but we are still growing at a fairly rapid pace." Currently, it takes about a year from the manufacturing of NVIDIA chips to the delivery of AI supercomputers to customers Even if NVIDIA resolves its supply chain issues, another structural challenge is emerging: the global grid's growth rate is insufficient to meet AI computing demands. U.S. utility companies are reluctant to develop energy infrastructure for large AI projects because they are uncertain whether the AI boom will last long enough to recoup their substantial investments.

Tech Giants Under Pressure to Monetize AI

Apple is holding its most important annual product launch today, expected to unveil the iPhone 17 series along with upgraded Apple Watch and Vision Pro headsets. However, investors are more focused on signs of Apple's progress in deploying AI capabilities.

Clayton Allison of Prime Capital Financial stated:

It’s hard to recommend building a position or increasing holdings before this launch, especially after this recent rally, because we don’t expect to see features that are truly exciting to buy. If Apple continues to stumble in AI, I’m concerned about stock performance.

David Katz of Matrix Asset Advisors believes that the biggest risks have eased, but there won't be another rally until we have a clearer AI roadmap. I think the stock price will rise in the long term, but there won't be much upside in the short term.

Unlike Apple, Oracle is on a different path. After years of slow revenue growth, the company is benefiting from the AI computing race. The stock is up over 40% this year, ranking among the top 30 performers in the S&P 500.

Revenue growth is driven by its cloud infrastructure business, which Oracle expects to see sales growth leap to over 70% in the current fiscal year. Paul Meeks, Managing Director at Freedom Capital Markets, stated that he is primarily focused on whether cloud growth can be sustained in this earnings report, noting that Oracle has already demonstrated that its cloud business is benefiting from AI, but this needs to be confirmed again now