The AI trade might shift back to Nvidia because analysts just remembered what a chip is.
Physical infrastructure—data centers, cooling systems, buildings that house the machines—costs money. Chips also cost money. The revelation here is that one of these categories might become a larger percentage of spending than the other. Groundbreaking stuff. Someone should alert the press.
Nvidia sells the chips that go inside the infrastructure. This means when companies spend less on the buildings and more on the silicon, Nvidia benefits. The logic is airtight if you ignore every other chip manufacturer on earth and assume Nvidia maintains 100% market share forever while facing zero competition from AMD, Intel, or any company currently being funded by sovereign wealth funds with names you can't pronounce.
The thesis assumes hyperscalers will keep buying GPUs at the same rate even after they've already purchased enough compute to simulate the entire observable universe. They won't slow down. They won't optimize what they have. They'll just keep ordering more chips because that's what companies do when they've committed to a capital expenditure cycle they can't explain to shareholders.
Retail traders read "shift back in Nvidia's favor" and assume the stock will go up. They will buy calls. They will not hedge. They will not consider that a shift from 95% market dominance to 94% market dominance is still a shift, technically speaking, and that the word "favor" does not appear on a brokerage statement.
The beautiful part is that physical infrastructure spending going down doesn't mean chip spending goes up. It could mean total spending goes down and chips just decline slower. But that's not bullish enough for a headline, so we get this instead.
The AI trade could shift back in Nvidia's favor the same way gravity could shift back in favor of things that fall.
Photo by Mariia Shalabaieva on Unsplash
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