Will Nvidia Stock Keep Dropping in 2025?

Core Viewpoint - Nvidia's stock has declined 20% year-to-date despite strong operational performance, raising questions about the sustainability of the generative AI hype cycle [1] Financial Performance - Nvidia's fourth-quarter earnings showed a 78% year-over-year revenue increase, reaching a record $39.3 billion, primarily driven by the data center segment [2] - The company experienced a drop in gross margins from 76% to 73% in the fourth quarter, with expectations of further decline to 71% in the first quarter due to challenges in rolling out new Blackwell chips [3] Market Reaction - Following the earnings release, Nvidia's shares fell 14%, indicating market skepticism despite high growth rates and successful product launches [4] - Concerns about long-term demand are heightened by Microsoft's decision to reduce data center leases, which may reflect a broader industry sentiment [5][6] Client Dynamics - OpenAI's move to design custom chips with TSMC to lessen reliance on Nvidia raises alarms about potential demand erosion for Nvidia's products [7][8] Future Outlook - Nvidia's market cap stands at $2.6 trillion, with limited future upside anticipated due to concerns over falling gross margins and demand [9] - The forward price-to-earnings (P/E) ratio of 25.5 suggests Nvidia shares are relatively affordable, reducing downside risk unless macroeconomic conditions worsen significantly [10]