Nvidia’s AI boom revives a Warren Buffett warning for investors

Millions of Americans own Nvidia (NVDA) stock indirectly through retirement accounts and index funds, which means that a lot more than the fortunes of individual tech investors is riding on the AI boom. 

Nvidia’s rise has been the biggest catalyst for the broader market, but a warning issued by Warren Buffett, now the chairman emeritus of Berkshire Hathaway, in 1999 offers a timely reminder that transformative technology doesn’t automatically make every leading company a great investment at any price.

Buffett’s concern during the dot-com era was not whether technology would change society. It was whether investors could identify which companies would preserve a “truly durable competitive advantage”.

Buffett’s warning is especially relevant now because Nvidia has already delivered exceptional results. Since ChatGPT’s launch in late 2022, the company’s annual revenue has grown from roughly $27 billion to more than $215 billion, according to Seeking Alpha data, while its market value has expanded from about $420 billion to roughly $5.5 trillion.

For Nvidia shareholders today, the unresolved question is: how much of the company’s current AI economics can endure as competition and customer alternatives grow.

Buffett’s warning was about picking winners, not doubting technology