While some strategists say to “buy high, sell higher” on Nvidia stock, Terry Smith is staying away from Nvidia altogether.
Smith has been called Britain’s Warren Buffett; he manages the £22.8 billion ($29.33 billion) Fundsmith Equity Fund.
He has chosen not to invest in Nvidia, the world’s largest company with a market cap of over $3.5 trillion at the time of writing because he says consumers haven’t shown that they’re willing to pay for AI.
“I’m not confident that we know what the future of AI is because there are almost no applications people are paying for,” Smith told Bloomberg last week. “Will they be willing to pay on a sufficient scale and a sufficient price to justify this? Because if not, the suppliers of the chips are going to have a problem.”
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A recent survey shows that people are unwilling to pay extra for AI processors and other hardware: 84% of over 22,000 PC users surveyed in May by TechPowerUp said that they would not pay more for hardware with AI features.
Yet another data point shows that users are willing to pay for AI products in some cases. Over 11 million people are opting to pay for ChatGPT; an August report estimates that OpenAI makes an estimated $3.4 billion in annual revenue from ChatGPT subscriptions.
Nvidia CEO Jensen Huang has stated that he personally pays for ChatGPT and uses it as a personal tutor.
Smith’s decision to not invest in Nvidia has caused his fund to miss out on Nvidia’s high returns. The Fundsmith Equity Fund saw a 9.3% return between January 1 and June 30; it underperformed compared to the MSCI World Index, which made 12.7% over the same six-month period.
Smith said that it was “difficult” to reach the MSCI World Index return without owning Nvidia, but defended his stance to stay away from the stock: “We do not own any Nvidia as we have yet to convince ourselves that its outlook is as predictable as we seek,” he wrote at the time.
Fundsmith Equity has a stake in other tech stocks, including Apple, Meta, and Microsoft.
While Smith may have his reasons for not investing in Nvidia, the company remains one of the world’s most sought-after AI chip suppliers, with anywhere from 70% to 95% of the AI chip market. Huang spoke recently about the “insane demand” the company faced when it came to its latest Blackwell AI chip.
“Everybody wants to have the most, and everybody wants to be first,” he stated last month.
Nvidia is one of the “Magnificent Seven,” a group of tech stocks that also includes, Amazon, Apple, Meta, Microsoft, Google, and Tesla.
Nvidia is not only a part of the Magnificent Seven, but many members of the group are also clients: Amazon, Meta, Microsoft, and Google are responsible for more than 40% of Nvidia’s revenue.