The One AI Risk Nvidia Bulls Keep Pretending Isn't Real

Core Viewpoint - The main debate on Wall Street regarding Nvidia Corp centers on the demand for AI, but the more critical question is how long Nvidia can maintain high margins of over 70% before hyperscalers seek alternatives [1] Group 1: Nvidia's Market Position - Nvidia's primary threat is not from competing GPUs but from Google's TPUs, which signify a shift where hyperscalers may stop outsourcing the most profitable aspects of AI [1] - Google is scaling TPUs not to compete in hardware but to reduce its dependency on Nvidia, allowing it to run AI on its own terms and infrastructure [2] - TPUs only need to be "good enough" for large in-house workloads, which allows hyperscalers to erode Nvidia's pricing power gradually [3] Group 2: Industry Trends - The risk for Nvidia arises when hyperscalers realize that custom silicon can significantly improve their gross margins, leading them to seek alternatives to Nvidia [4] - Major companies like Amazon, Meta, and Microsoft are already developing their own alternatives, indicating a trend away from reliance on Nvidia [4] - Nvidia does not need to lose compute share to lose its margin leadership; it only requires hyperscalers to create credible alternatives that set a price ceiling [5] Group 3: Investor Insights - While the demand for AI remains strong, the pricing power of Nvidia is in jeopardy, as the company may face negotiations rather than obsolescence [6] - Once hyperscalers gain real leverage, the notion of maintaining "70% margins forever" will become a thing of the past [6]