How Nvidia Stock Could Fall To $65

Nvidia's Revenue Growth - Nvidia's revenues grew nearly 3x over the last 12 months, driven by increased demand for GPUs in AI tasks [1] - Recent quarterly sales growth was 122%, but there are signs of cooling growth, with potential declines in medium-term sales [1] - Consensus estimates project FY'25 revenues to double to $129 billion, but growth could slow to 10% over the next two years, reaching $165 billion by FY'27 [5] AI Training Demand and Competition - AI model training, a major driver of Nvidia's GPU demand, may slow due to diminishing incremental performance gains and limited high-quality data availability [2] - The AI landscape is shifting towards inference, which is less computationally intensive and could open opportunities for competitors like AMD and Intel [3] - Microsoft, Nvidia's largest GPU customer, is no longer supply-constrained, indicating easing demand for GPUs [4] Margins and Valuation - Nvidia's net income margins improved from 25% in FY'19 to 49% in FY'24, driven by economies of scale and a favorable product mix [6] - Margins could decline to 35% due to mounting competition from AMD, Intel, and big tech players like Google and Amazon [13] - If revenue growth slows to 1.2x and margins contract to 35%, net income could decline by 15% by 2027, impacting Nvidia's P/E multiple [7] Stock Volatility and Downside Risk - Nvidia's stock has been highly volatile, with annual returns of 125% in 2021, -50% in 2022, and 239% in 2023 [7] - A combination of slower growth, margin contraction, and a shrinking P/E multiple could lead to a 50% decline in stock price to around $65 [1][7] Supply-Demand Dynamics - The supply-demand mismatch in GPUs is easing, with Nvidia potentially facing pricing pressures or slower sales growth as supply catches up [12] - Large customers may rethink inventory requirements, further impacting Nvidia's sales [12]