April 30 - Nvidia (NVDA, Financial), Oracle (ORCL, Financial), and Broadcom (AVGO, Financial) are facing significant risks if the artificial intelligence (AI) capital expenditure (capex) cycle slows, according to Marko Kolanovic, former J.P. Morgan chief strategist.
Kolanovic highlighted that AI spending, which has been a primary economic driver over the past two years, may no longer sustain its rapid growth. While demand remains high, efficiency pressures are intensifying. He emphasized concerns that large language models are becoming commoditized, which could affect the valuations of many companies that previously thrived in the AI sector.
Kolanovic pointed out that major cloud providers, or hyperscalers, are now more cautious about excessive capex, especially after already committing to massive investments. He noted that while AI capex is unlikely to collapse, it is difficult to maintain the growth rate seen in recent years, especially for companies like Nvidia that rely on continuous investment.
For Nvidia, he identified five potential challenges, including competition for its Mellanox business, declining CUDA adoption, and issues with its product roadmap. Similarly, Oracle's capex spending, while substantial, is growing faster than its cash flow, making it vulnerable if ROI falters.
Broadcom, despite benefiting from the AI boom, faces risks due to its high valuation and exposure to competitive pressures, particularly in the Chinese market. Kolanovic warned that a slowdown in AI spending could lead to significant declines in its stock multiple.
