Is Nvidia in a bubble that’s about to burst? Some Wall Street analysts are worried.
There are five stages of a stock market bubble, and it seems like Nvidia has blown through the first three: displacement, boom, and euphoria. In other words, Nvidia’s AI chip innovation got the attention of investors, its stock began to rise, and now its share price is soaring. That’s because tech companies are rushing to buy Nvidia’s chips to support their AI efforts. Microsoft, Meta, Google, Amazon and Tesla are some of Nvidia’s biggest customers.
Some analysts say Nvidia is just like Cisco Systems during the early 2000's dot-com bubble. Just as Nvidia is crucial to AI infrastructure, so, too, was Cisco’s networking hardware to the beginning of the internet. When the bubble burst as funding for early internet startups dried up, Cisco’s shares plummeted 80%.
Wall Street’s worried that could happen with Nvidia. In this case, AI is likened to the dawn of the internet.
The stakes could be even higher today, according to some analysts — making the crashes steeper and the burst more pronounced for an AI bubble. Torsten Sløk, chief economist at Apollo Global Management, told Quartz last week that the top 10 companies in the S&P 500 today are more overvalued than their counterparts in the tech bubble of the mid-1990s.
But other Wall Street moguls disagree. JPMorgan CEO Jamie Dimon told CNBC recently that Nvidia is not a bubble, adding that the key difference from the dot-com era is that while the internet bubble was hype, AI isn’t. Dimon’s reasoning: AI can handle “a tremendous amount of stuff,” in areas such as cybersecurity and pharmaceutical research.
And it’s true that Nvidia is far from reaching the fourth stage of a stock bubble, which is profit-taking. So far, only 1% of the chipmaking giant’s publicly traded shares are being sold short, according to The Wall Street Journal.
One key concern is that demand for Nvidia will eventually fall because of who its customers are: currently, Nvidia’s buying base is concentrated among big tech companies. If, say, Microsoft shifts its spending to other chipmakers — or concentrates on making its own AI chips — it simply won’t need Nvidia anymore. It seems that shift is already in the works.