Is it Time to Cash in Your Chips on Nvidia?

For much of this year, artificial intelligence has been the dominant theme driving markets higher. By boosting productivity, AI promises to help companies trim costs, widen margins, and scale output. Lately, though, the AI revolution is getting a second look.

The massive data centres required to power AI are hitting a wall of local opposition. While people want the technology, few want the infrastructure near their homes. Unwilling to bear higher utility costs or water shortages, 71% of respondents in a recent Gallup poll opposed local data centre construction, even though 52% supported building them in remote locations.

Today, nearly 54% of the world’s hyperscale data centres are located in the U.S., but pushback is mounting. Already, 25 states have introduced moratoriums, pauses, or local bans on new construction. New York, for example, halted permits pending environmental reviews, while Texas froze new power grid connections until developers pass strict energy and water audits.

Beyond local infrastructure pushback, AI is also stoking existential fears. Warning of catastrophic risks, one Anthropic researcher estimates a 10% chance that superintelligent AI could trigger human extinction. Industry leaders like Dario Amodei (CEO of Anthropic), Sam Altman (CEO of OpenAI), and Elon Musk have all made headlines by calling for caution and guardrails on rapid AI development.

With all this pushback, are AI stocks worth selling?

The short answer is no.

History shows that nearly every major infrastructure shift sparks this exact kind of local panic. In the 1800s, critics protested railroads, claiming that traveling faster than 30 mph would cause brain damage. In the 1990s, cell phone towers faced fierce resistance over radiation fears and declining property values. Yet, because the technology was essential, the infrastructure was built anyway. The AI data centre build-out will be no different.

Similarly, fears that AI will trigger human extinction are vastly overblown. History proves that society consistently develops solutions for complex new risks. We built seatbelts for fast cars and air traffic control for planes. AI will be no different, and human ingenuity will adapt to manage the risks.

Nvidia is the undisputed poster child of the AI movement. After all, it produces the advanced chips and software architecture that virtually every modern AI data centre relies on. (Disclosure: Clients, Jeff Pollock, and Sunni Schneider have a financial interest in Nvidia as shareholders. No compensation was received to publish this content.)

Skeptics argue Nvidia’s best days are behind it as its rapid growth inevitably cools off. However, a growth slowdown does not mean the end of investor returns. When Apple’s early iPhone expansion slowed in 2012, it deployed an aggressive buyback and dividend program, fueling an 1,800% total return in the years since. Nvidia is nowhere near a growth slowdown today, but Apple shows how large companies can generate immense shareholder value long after peak earnings growth.

Nvidia’s business fundamentals show why it is such a strong investment for the long run.

1. The company expects its sales to jump 70% next year. Demand for its technology is expected to double, meaning the company cannot build chips fast enough to satisfy buyers.
2. Nvidia boasts high gross profit margins of around 75%. Even after heavy research and development investments, the company converts over 50 cents of every sales dollar into net bottom-line profit, an extraordinarily high level of profitability for a hardware company.
3. Despite this rapid expansion, the stock’s valuation is shockingly cheap. Its price-to-earnings ratio is 14x (2028) and 11x (2029). To put that into perspective, the S&P 500 trades at 19x earnings today.

Despite current fears around data centre pushback and AI doomsday scenarios, we believe these hurdles will be resolved. That is why we remain confident in holding Nvidia for our client portfolios.

-written by Jeff Pollock