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Nvidia stock has entered correction territory and some key shifts in the artificial intelligence narrative may be pressuring shares as 2024 winds down.
The chipmaker's stock has declined 17% since its record high of $152.89 on November 21. It is edging closer to a bear market, which Wall Street traders define as a 20% drop from the most recent peak.
The AI darling's stock price decline accelerated late last week following comments from Microsoft CEO Satya Nadella.
In an interview with Bill Gurley and Brad Gerstner of the B2 podcast, Nadella signaled that the AI chip demand frenzy may be waning.
When asked if Microsoft was still "supply constrained" in its buildout of AI technologies, Nadella responded, "I am power [constrained], yes, I'm not chip supply constrained."
He added: "We were definitely constrained in '24. What we have told the street is that's why we are optimistic about the first half of '25 which is the rest of our fiscal year. And then after that I think we'll be in better shape going into 2026 and so we have good line of sight."
Since Nadella's comments, Nvidia shares have declined 7%. Microsoft is thought to be Nvidia's largest customer, representing an estimated 20% of its revenue.
The comments from Nadella suggest a shifting supply and demand dynamic for Nvidia's AI chips, which have seen enormous demand over the past two years as companies race to build out their own large language models.
The demand was so enormous for Nvidia's GPUs that the company had to selectively pick which companies would receive priority for its chips, with stories of billionaire tech founders begging Nvidia CEO Jensen Huang for more chips over dinner.
Nadella's comments that it is no longer supply-constrained for chips doesn't necessarily mean that demand is waning for Nvidia's main product set. It could simply mean supply is finally catching up for some of Nvidia's core GPU products.
To be sure, recent analyst commentary from Wall Street has suggested that Nvidia's next-generation Blackwell GPU chip already faces at least a one-year backlog for new orders.
However, Nadella's comments muddy some of the most bullish views on Wall Street, which loves to hear demand is outstripping supply for a company's products. One of Nvidia's largest customers saying that's no longer the case could give pause to investors hoping for another year of eye-popping growth for Nvidia.
There are other factors that could be weighing down shares of Nvidia in recent weeks, too, including comments from industry leaders in the AI space.
Alphabet CEO Sundar Pichai said earlier this month that progress in AI models will get more difficult in 2025 because "the low-haning fruit is gone."
"When you start out quickly scaling up, you can throw more compute and you can make a lot of progress, but you definitely are going to need deeper breakthroughs as we go to the next stage," he said. "So you can perceive it as there's a wall, or there's some small barriers."
OpenAI cofounder Ilya Sutskever made comments last week that also suggested the development of AI could face roadblocks.
"We've achieved peak data and there'll be no more," Sutskever said.
There have also been mounting signs that the bold predictions of artificial general intelligence, seen as a massive milestone for the technology, are farther out than initially estimated.
Finally, stellar earnings results from Broadcom on Friday could simply be driving a rotation out of some AI winners and into others, according to Dan Ives of Wedbush.
Broadcom said in its fourth-quarter earnings release that its AI business was booming, and it expects the strength to continue over the next few years. Broadcom develops custom AI chips for cloud companies like Amazon and Alphabet.
"Many on the Street are starting to play 2nd/3rd derivatives of AI Revolution and sell some Nvidia," Ives told Business Insider on Tuesday.
However, he said Nvidia's ongoing decline should be approached as a buy-the-dip moment for investors.
"This is a digestion period for Nvidia that will be short lived," Ives said. "We view Nvidia as a table pounder AI name to own as the Godfather of AI Jensen is leading this 4th Industrial Revolution into 2025."
