Nvidia Faces Meaningful Threats

Bank of America also noted that the number of GPUs sold by one of Nvidia’s competitors, AMD $Advanced Micro Devices(AMD.US)$ , “more than tripled” in Q4 versus Q3. Meanwhile, as I’ve noted in past columns, Intel’s $Intel(INTC.US)$ AI chips, known as Gaudi processors, appear to be becoming quite popular as the company reported that it had a backlog of over $2 billion for the chips as of the end of last year.

Given these rising competitive threats, the extremely high prices that Nvidia is charging for its AI chips are likely to drop sooner rather than later.

Meanwhile, gaming chips still generate a significant amount of Nvidia’s sales, as they accounted for $2.9 billion of its revenue last quarter. As a result, for those considering buying NVDA stock, it’s certainly worth noting that Electronic Arts $Electronic Arts Inc(EA.US)$ , a prominent video-game maker, recently disclosed that it would lay off 5% of its workforce, cancel a Star Wars game that it had been developing and close “one of its game development studios.” Moreover, Microsoft $Microsoft(MSFT.US)$ , Sony $Sony(SONY.US)$ and Tencent $Tencent(TCEHY.US)$ , have all slashed hundreds of roles at their respective video-game units in recent months.

In light of these developments, I believe that the demand for video games could be meaningfully dropping at this point. If that’s the case, the demand for Nvidia’s gaming chips could also drop significantly.