Nvidia (NASDAQ: NVDA) is the poster child for the artificial intelligence (AI) industry. Its chips are the “brains” that make AI function. However, AI doesn’t live in a vacuum. With rising oil and natural gas prices, investors may need to start worrying about the future of AI companies like Nvidia. Here’s why.
The geopolitical conflict in the Middle East has resulted in major supply disruptions. The headline-grabbing problem is oil, but natural gas, chemicals, and even fertilizer markets have also been impacted. When supply is constrained in a commodity market, prices tend to rise.
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At first glance, this shouldn’t affect artificial intelligence stocks. To some degree, that’s true, as AI use is likely to continue to expand even amid higher energy costs. However, higher costs will ripple through the entire economy. For example, Nvidia can’t make its chips without power, and natural gas is used to generate power. It may find its manufacturing costs heading higher as a result. That’s just one small example in what is a vast AI ecosystem.
Reliable and affordable power is also a major bottleneck for companies that build and operate the data centers that house AI. As power prices rise, it will likely become more expensive to build and operate AI infrastructure, altering the technology’s cost-benefit analysis. That said, costs are likely to rise throughout the economy, as well.
Fertilizer costs have also risen dramatically, and that could lead to food inflation. Consumers are already tightening their budgets, so higher costs for gasoline, electricity, and food could easily push the U.S. economy into a recession. If that spills over to the rest of the world, AI could run into a very big wall.
There are estimates that as much as $700 billion could be spent on the AI build-out in 2026. That’s a huge sum of money, but all of that capital investment depends on the belief that there will be a satisfactory return. Large capital investment projects, such as building data centers, constructing factories, and even investing in new technology (such as AI), tend to be cyclical. During a recession, spending on such things often gets delayed or even canceled.
To be sure, the sky isn’t falling. Demand for and use of artificial intelligence will continue to grow even in a worst-case scenario. The real issue for investors is that Wall Street has priced in a lot of good news for many leading AI stocks. Nvidia’s price-to-earnings ratio is 36x, which is high on an absolute level and well above the S&P 500 (SNPINDEX: ^GSPC) index’s P/E of 27x. Nvidia’s P/E is actually on the low side compared to some other stocks that have been viewed as AI investments, like Silicon Labs (NASDAQ: SLAB), which sports a P/E of more than 200x based on adjusted 2025 earnings.
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