Nvidia results signal strong AI spending, but questions on returns grow: Jefferies

New Delhi [India], November 21 (ANI): Nvidia's latest results confirm that spending on artificial intelligence (AI) remains strong, underlining continued confidence in the technology's growth potential.
According to Jefferies' recent 'GREED & Fear' report, the outcome was expected, but the market's enthusiastic response may be missing a deeper concern. "The real issue is when markets will start to focus on how investors in AI capex are going to make the returns to justify this enormous spending," the report said.
The report, released on Thursday, noted that Nvidia's stock rose by 2.8 per cent in the past 24 hours, while Taiwan Semiconductor Manufacturing Company (TSMC) gained 4.3 per cent. These gains, however, do not address the underlying question of sustainability.
The analysis, published in the report, warned that a "reality check" is likely to come soon. It stated, "GREED & fear would be amazed if it did not occur by the end of the first half of next year." The note suggested that while the AI infrastructure boom has driven stock market gains, the best days for the "AI picks and shovels" trade in the Western world may now be behind us.
The report said that attention is shifting to which companies can most effectively monetise AI applications outside China. "It is now time to make a bet on who, if anyone, will most successfully monetise AI," it added. Jefferies highlighted Alphabet as a leading contender, citing its progress in integrating Gemini AI into traditional search functions.
Citing data from SimilarWeb, the report said Gemini's share of web traffic in the generative AI market rose from 5.6 per cent to 13.7 per cent over the past year, while ChatGPT's share declined from 86.6 per cent to 72.3 per cent. "For this reason, GREED & fear will include Alphabet in the global long-only equity portfolio this week by removing the investment in ICICI Bank," the report noted.
The report also drew attention to the difference in valuations between ChatGPT and social media platform Snapchat. It said that while Snapchat had 477 million daily active users and a market capitalisation of around USD 13.8 billion, ChatGPT, with about 800 million weekly active users as of October, was valued at around USD 500 billion based on its latest capital raise.
"These contrasting valuations raise obvious questions given the continuing lack of any killer application," the Jefferies report concluded, signalling growing caution over the sustainability of AI's market enthusiasm. (ANI)