AI Revolution Depreciation Concerns and Impact on NVIDIA (NVDA) Valuation

This analysis is based on a 2025-11-29 Seeking Alpha article [1] that discusses the AI revolution’s market impact while highlighting concerns about overvaluation and depreciation policies. The AI sector has driven significant gains, but markets are overbought [1]. NVIDIA (NVDA) shows mixed performance: a 14.75% decline over one month but a 27.62% year-to-date (YTD) gain [0]. Market indices (S&P500, Nasdaq, Dow) have recent gains but exhibit volatility [0]. A key issue is AI companies extending hardware depreciation lives from 3 to 5–6 years, inflating reported earnings [2]. NVDA’s revenue is 88.3% from data centers [0], making it vulnerable to changes in customer capex due to depreciation adjustments.

1. Depreciation Policy Divergence
   : Companies like Meta extend AI hardware lives to 5.5 years, while Amazon shortens to 5 years [2], reflecting uncertainty about obsolescence (typically 2–3 years per industry experts [2]).
2. NVDA’s Revenue Vulnerability
   : NVDA’s heavy reliance on data center revenue means any slowdown in customer capex (from depreciation policy corrections) directly impacts its top line [0].
3. Valuation Risk
   : NVDA’s high P/E ratio (43.29x [0]) leaves little room for earnings misses if depreciation assumptions are adjusted to reflect faster obsolescence.

:

• Earnings Downgrades
  : AI stocks may face downgrades if depreciation policies align with actual obsolescence [1,2].
• NVDA Revenue Impact
  : Cloud providers adjusting depreciation policies could reduce GPU purchases, hitting NVDA’s sales [0,2].
• Market Correction
  : Overvaluation concerns may lead to a sector correction if depreciation risks materialize [1,2].

: No significant opportunities identified in the analysis.

• NVDA’s performance: 1-month decline (-14.75%), YTD gain (+27.62%), 3-year gain (+1028.58%) [0].
• Analyst consensus: Buy with a $250 target price (+41.6% from current levels [0]).
• Depreciation issue: Extending asset lives inflates earnings but masks rapid obsolescence [2].
• Market indices: Recent volatility aligns with sector sustainability concerns [0].