Nvidia stock correction: Microsoft CEO points to easing chip supply crisis

• Nvidia shares are near bear market territory after a 17% decline from their record high in November.
• The selloff has intensified since recent comments from Microsoft’s CEO suggested the chip craze was waning.
• Wedbush analyst Dan Ives sees Nvidia’s decline as a temporary decline with good AI prospects for the future.

Nvidia stock has entered correction territory and some major shifts in the artificial intelligence narrative could pressure shares toward the end of 2024.

The chipmaker’s shares have fallen 17% since hitting a record high of $152.89 on Nov. 21. It is approaching a bear market, which Wall Street traders define as a 20% decline from the recent peak.

The AI ​​darling’s share price decline accelerated late last week following comments from Microsoft CEO Satya Nadella.

In an interview with Bill Gurley and Brad Gerstner of the B2 podcast, Nadella suggested that demand for AI chips may be slowing.

When asked if Microsoft was still “supply constrained” in developing AI technologies, Nadella replied: “I am power (constrained), yes, I am not constrained in supply of chips.”

He added: “In 2024 we were definitely limited. What we have said to the public is that we are therefore optimistic about the first half of ’25, which represents the remainder of our fiscal year. And after that, I think we will be. By 2026 we will be in better shape and so we have a good line of sight.”

Since Nadella’s comments, Nvidia shares have fallen 7%. Microsoft is considered Nvidia’s largest customer, accounting for an estimated 20% of the company’s revenue.

Nadella’s comments point to changing supply and demand dynamics for Nvidia’s AI chips, which have seen huge demand over the past two years as companies vie to develop their own large language models.

The demand for Nvidia’s GPUs was so enormous that the company had to be selective about which companies should get priority for its chips. There have been stories about billionaire tech founders begging Nvidia CEO Jensen Huang for more chips over dinner.

Nadella’s comments that chip supply is no longer limited does not necessarily mean that demand for Nvidia’s main product range is waning. It could simply mean that supply for some of Nvidia’s core GPU products is finally catching up.

Of course, recent analyst commentary from Wall Street suggests that Nvidia’s next-generation Blackwell GPU chip is already facing an order backlog of at least a year.

However, Nadella’s comments cloud some of the most optimistic views on Wall Street, which likes to hear that demand is outstripping supply for a company’s products. The statement from one of Nvidia’s largest customers that this is no longer the case may give pause to investors hoping for another year of stunning growth for Nvidia.

There are also other factors that could be weighing on Nvidia’s shares in recent weeks, including comments from industry leaders in the AI ​​space.

Alphabet CEO Sundar Pichai said earlier this month that progress in AI models will become more difficult in 2025 because “the low-hanging fruit has disappeared.”

“If you start scaling quickly, you can deploy more computing power and make big progress, but getting to the next level will definitely require deeper breakthroughs,” he said. “So you can perceive it as if there was a wall or a few little barriers.”

OpenAI co-founder Ilya Sutskever made comments last week that also suggested that AI development could face obstacles.

“We have reached peak data and there will be no more,” Sutskever said.

There are also growing signs that the bold predictions of artificial general intelligence, seen as a huge milestone for the technology, are further in the future than initially thought.

Finally, Broadcom’s stellar earnings results on Friday could simply lead to a rotation from some AI winners to others, according to Wedbush’s Dan Ives.

Broadcom said in its fourth-quarter earnings release that its AI business is booming and that the company expects that success to continue over the next few years. Broadcom develops custom AI chips for cloud companies like Amazon and Alphabet.

“A lot of people on the street are starting to eat 2nd/3rd. “Playing derivatives of AI Revolution and selling some Nvidia,” Ives told Business Insider on Tuesday.

However, he said Nvidia’s continued decline should be viewed as a buying moment for investors.

“This is a digestion period for Nvidia that will be short-lived,” Ives said. “We view Nvidia as a leading AI name to own as the godfather of AI Jensen leads this fourth industrial revolution into 2025.”