The artificial intelligence (AI) revolution will be an ongoing focus for investors given its transformational potential. However, the winners and losers in the market can change quickly in this fast-evolving space.
In a recent interview said Microsoft (NASDAQ: MSFT) CEO Satya Nadella said something that could be worrying for the big winner of 2023 and 2024 Nvidia (NASDAQ: NVDA)which has walked away with many AI value gains so far. But Nadella’s statement could be very bullish for a particular commodity whose associated stocks often yield high dividends for passive income.
Earlier this month, Nadella appeared on a podcast with venture capitalists Brad Gerstner and Bill Gurley. The extensive interview of more than an hour was about AI. But while the interview was largely optimistic about the prospects of AI in general, one topic emerged that seemed to put a damper on sentiment surrounding Nvidia.
When asked if Microsoft still had a limited supply for Nvidia chips, as in 2024, Nadella noted:
I am power [constrained]yeah, I’m not limited on the supply of chips… We were definitely limited in ’24. What we told the Street is that’s why we’re optimistic about the first half of ’25, the rest of our fiscal year. And after that, I think we will be in better shape in 2026 and so we have a good field of view.
Since that statement, Nvidia stock has been somewhat weak. That’s not surprising. Since 2023, Nvidia’s chips have been in demand far in excess of what could be supplied, leading to large sales increases and high margins for Nvidia’s graphics processing units (GPUs). And Microsoft is by far Nvidia’s largest customer. Some estimate that Microsoft accounted for 20% of Nvidia’s revenue last year.
On recent earnings calls, Microsoft noted that supply was limited; otherwise, the growth of the Azure cloud, especially for AI workloads, would have been even faster. So now Nadella’s suggestion that supply constraints may be coming to an end could mean one of three things: demand for AI is slowing; chip supply improves; or a little of both happens.
There have been rumors that improvements to AI models for major languages may be more difficult to achieve, and that the pace of innovation could slow. These rumors have been denied by some major industry participants, but they could have an effect on AI chip purchases. After all, if the expected returns from AI experiments and applications emerge slowly, demand could decline. Even if Microsoft sees strong demand from enterprise customers, smaller buyers of GPUs, such as mini-cloud CoreWeave or others that provide capacity to riskier AI startups, may see less demand.