Calling a spade a spade, there are plenty of reasons NVIDIA Corporation (NASDAQ:NVDA) could, and arguably should, worry investors. Aside from the fact that NVDA stock is priced at a frothy 51.9 times its forward-looking earnings, rivals Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) have finally figured out they’re going to have to team up to slow Nvidia’s growing dominance in artificial intelligence (AI) as well as within the cryptocurrency mining arena.
Yet, of all the reasons to sell your NVDA stock, recent comments from Tesla Inc (NASDAQ:TSLA) CEO Elon Musk (suggesting his company’s self-driving vehicle platform might need more computing power than Nvidia’s technology is currently giving it) isn’t one of them.
Did Musk ‘Diss NVDA?
The short version of a long story: Unbeknownst — until last week anyway — to many investors is that Nvidia has partnered with Tesla to provide some of the hardware and technologies that power its so-called Enhanced Autopilot system.
It’s not been a secret, to be fair. In that Tesla has only been selling on the order of 25,000 vehicles per quarter so far this year, though, it’s just not been terribly interesting. Nvidia’s ‘story’ has mostly been about everything else it’s doing — GPUs, AI, data center and more. Self-driving cars are the future, but they’re not a significant part of the present, even though the premise is uber-cool.
When asked about the prospect of launching a fully autonomous vehicle, during the Q&A portion of Tesla’s most recent earnings call, however, Musk loosely alluded to the possibility that the current self-driving technology may not be powerful enough. He commented:
“The question is not just full autonomy, but full autonomy with what level of reliability? And what will be acceptable to regulators? For customers that have signed up for self-driving capability, or purchased that option, if it does turn out that a computer upgrade is necessary in order to meet the regulatory requirement in their area, we will replace their computer with something with greater power.”
The computer in question is largely built around Nvidia hardware, prompting a slight setback for NVDA stock shortly thereafter, with the stage for that weakness set by September’s rumors that Tesla and AMD were possibly teaming up in the development of a custom-built AI chip that could provide the computing power necessary to drive autonomous cars. Though the rumor was (mostly) debunked a few days later, the seeds of doubt had been planted. Sometimes, a little doubt is all it takes. Still…
Sometimes, Musk Just Says Stuff
Were it any other company or any other CEO, such comments — coupled with credible-sounding rumors — might be treated as plausible developments. This is Elon Musk, though, who more so than most any other chief executive tends to verbalize his stream of consciousness without sharing the full context of those thoughts. He has a way of skipping that they’re just part of a list of possibilities.
Case(s) in point: Musk thinks there’s a good chance that we’re all just living in a computer simulation (ala’ The Matrix); he’s already opining what a government on Mars should look like; and, he’s still pretty convinced that the rise of AI could ultimately create a race of sentient robots and computers that take over the planet. These aren’t things he’s thought, but things he’s said… repeatedly, and often without being asked to make a comment on such matters.
Sometimes, Musk just says whatever crosses his mind, largely unconcerned that anyone within earshot could (and possibly will) take them out of context.
Bottom Line for NVDA Stock
None of this is to suggest that Tesla won’t push Nvidia out, and opt for a different supplier, or even develop its own AI platform that displaces Nvidia’s. To the extent that that’s possible, owners of NVDA stock should at the very least keep tabs on the story as it continues to develop.
On the other hand, just because Musk implies it could happen hardly means it’s going to come to pass. The fact that NVDA stock halted its Musk-fueled pullback before it got started in earnest says most traders understand this is just Elon being Elon. Never even mind that fact that in the grand scheme of things, Nvidia’s partnership with Tesla isn’t a game-changing source of revenue for the technology company.
If an overbought and overvalued NVDA stock is going to sell off here in the midst of its vulnerability, it’s going to take something else to do it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
