Kyle's Blog

It's Time to Short NVDA

The AI Bubble is About to Burst, and Nvidia Could Be the First to Fall

Nvidia is the undisputed leader of the AI hardware boom. Even though the stock was sent skyrocketing due to real world demand for Nvidia's products that is only part of the reason their stock had repeated all-time highs throughout 2024. Challenges on the horizon will spell disaster for Nvidia’s future and potentially the entire AI sector.

Recent indicators show that Nvidia’s success might be at its peak, and a downturn could be imminent. After the election, if the political climate shifts and AI demand slows, Nvidia’s stock will inevitably see a significant correction.

Nvidia's Biggest Problems:

1. GPUs are oversold

While training AI models requires immense GPU power, running those models after they’ve been trained doesn’t. Many companies that once had GPUs on backorder are now realizing that they don’t need as much GPU power as they initially thought. Even a modern MacBook or desktop CPU can run AI models efficiently.

2. AI backlash is growing

Public opinion on AI is starting to sour, especially as more people realize the downsides. Wendy’s, for instance, quickly scrapped its experiment with AI-driven ordering after customer complaints. Other companies are also quietly shelving their AI projects as people begin to avoid systems that rely on AI.

3. Nvidia's dominance is unsustainable

Nvidia currently makes up over 10% of the U.S. GDP’s market capitalization [2]. Competitors like AMD and Intel are already stepping up, offering cheaper alternatives. Even if AI continues to grow, Nvidia’s market share will shrink as competition heats up.

AI Booms and Busts, A Long History

The dot-com bubble can serve our example of how overhyped technology has led to massive market correction as I predict that AI will follow a similar trajectory. While I agree that AI will be tranformative and is unmeasurably useful, for example, AI is writing this article right now (just don’t tell Kyle that) there is growing skepticism about its ability to generate the kind of profits that justify the billions being poured in.

History has shown that so far every single tech boom has been followed by a tech bust and we’re already starting to see signs that AI could be next. As we learned from the dot-com and housing bubbles, once the excitement fades and the financial returns don’t materialize, the market correction can be swift and brutal. If AI follows the same pattern, Nvidia will likely be one of the first companies hit, given how deeply tied their business is to the success of AI. Nvidia is like Pets.com, Altavista and Ask Jeves all rolled into one.

You Are Here...

...On the Boom-Bust Cycle

The Pyramid of Death

Right now we are at the peak of the AI boom. The Biden/Harris/Walz campaign/Administration is pouring untold cash into the market with no signs of slowing before the election. Nvidia has been riding high, with insane profit margins, almost 10x their production cost. It’s not hard to see why they’ve been so successful, but when profits hit this level, the market inevitably begins to correct itself.

Tech bubbles usually run for a few years before collapsing. The AI bubble is eerily similar, with massive investment and companies scrambling to get in. Nvidia is in a vulnerable spot right now! We could be 1-3 months away from a major market correction, especially with political uncertainty looming post-election.

When the political landscape does shift, if Kamala Harris wins, the economic fallout could accelerate that correction. Regulatory changes, reduced tech funding, or even just a broader market slowdown could quickly deflate the AI hype. That’s why the time to start thinking about shorting Nvidia could be now, while it’s still riding this peak of the boom cycle.

Conclusion: Put Your Money Where Your Money Is

So, if you believe, like I do, that the AI bubble is going to pop soon after the election, now’s the time to start planning for it. Nvidia has been at the center of this AI frenzy, and that puts it in a dangerous spot when the hype fades and reality sets in. As AI investment cools and competition catches up, Nvidia’s dominance in the market will shrink.

The best strategy here is to consider long-dated put options on Nvidia and other AI-heavy companies. By setting these options 2-3 months after the election, you give yourself enough time to capitalize on any post-election market changes and the potential downturn in AI stocks. If the AI hype slows down or if economic policies shift, these companies could see significant drops, and that’s where your short bet will pay off.

In short, Nvidia is riding high now, but the bigger they are, the harder they fall—and this could happen sooner than most think. The election could be the trigger, so keep your eye on the market, and consider acting before it’s too late.

Sources:
1. Apricitas Economics – AI Investment Boom. (https://www.apricitas.io/p/the-ai-investment-boom)

2. InvestBCM – AI Investment Boom in the Context of History. (https://blog.investbcm.com)

3. Serverlift – 7 Reasons the AI Investment Bubble Could Pop. (https://www.serverlift.com)

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