While some strategists say “buy high, sell high” on Nvidia stock, Terry Smith stays away from Nvidia entirely.
Smith has been called Britain’s Warren Buffett; manages the £22.8 billion ($29.33 billion) Fundsmith Equity Fund.
He chose not to invest in Nvidia, the world’s largest company with a market capitalization of more than $3.5 trillion at the time of writing, because he says consumers have not shown they are willing to pay for AI.
“I’m not sure we know what the future of AI is because there are almost no applications for people to pay for it,” Smith told Bloomberg last week. “Will they be willing to pay at a sufficient rate and a sufficient price to justify this? Because if not, the chip suppliers will have a problem.”
Related: Nvidia’s Big Market Power Worries Investors – Here’s Why
A recent survey shows that people are not willing to pay more for AI processors and other hardware: 84 percent of more than 22,000 PC users surveyed in May by TechPowerUp said they would not pay more for hardware with AI features.
But another data point shows that users are willing to pay for AI products in some cases. Over 11 million people choose to pay for ChatGPT; an August report estimated that OpenAI makes about $3.4 billion a year from ChatGPT subscriptions.
Nvidia CEO Jensen Huang said he personally pays for ChatGPT and uses it as a personal tutor.
Nvidia CEO Jensen Huang. Photo by Chip Somodevilla/Getty Images
Smith’s decision not to invest in Nvidia caused his fund to miss out on Nvidia’s high profits. Fundsmith Equity Fund had a return of 9.3% between January 1 and June 30; it underperformed the MSCI World Index, which gained 12.7% over the same six-month period.
Smith said it is “difficult” to reach the return of the MSCI World Index without owning Nvidia, but he defended his stance on staying away from the stock: “We don’t own Nvidia as we have yet to make sure its outlook is as predictable as we want it to be,” he wrote at the time.
Fundsmith Equity has stakes in other technology stocks, including Apple, Meta, and Microsoft.
Related: Nvidia was once 30 days away from going out of business. Here’s Why It Overtook Apple To Become The World’s Largest Company.
While Smith may have his reasons for not investing in Nvidia, the company remains one of the most sought-after AI chip suppliers in the world, with anywhere from 70% to 95% of the AI chip market. Huang recently talked about the “insane demand” the company faced when it came to its latest Blackwell AI chip.
“Everybody wants to have more, and everybody wants to be first,” he said last month.
Nvidia is one of the “Magnificent Seven,” a group of technology stocks that includes, Amazon, Apple, Meta, Microsoft, Google, and Tesla.
Nvidia is not only part of the Magnificent Seven, but many members of the group are also customers: Amazon, Meta, Microsoft, and Google are responsible for more than 40% of Nvidia’s revenue.
Related: How Nvidia CEO Jensen Huang Turned a Graphics Card Company into an AI Giant: ‘One of the Most Remarkable Businesses in History’
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