The resignation of Nvidia CEO Jensen Huang after an affair with a suspected Chinese spy has pushed the AI bubble closer to bursting within the next year, market analysts warn.
Mr. Huang stepped down Thursday after revelations that he had affairs with Alice Huang, who U.S. intelligence says is a Chinese spy, and a company executive who reported to him.
Several financial experts told The Washington Times that chaos within the $4 trillion chipmaker adds to several other pressures on the industry: inflated stock valuations, rising lending rates and a major stock sell-off after Democrats seeking to regulate artificial intelligence data centers prevailed in last week’s midterm elections.
People were interested in these podcasts
“If you’ve got chaos at Nvidia, it could scare off investment at other companies because of their interconnected finances,” said Desmond Lachman, a senior fellow at the American Enterprise Institute. “It adds to several factors suggesting a high chance that the AI bubble will burst within the next year, if not sooner.”
A former Wall Street economist and chief emerging market strategist at Salomon Smith Barney, Mr. Lachman pointed to the 10-year Treasury yield rising above 5% and to “ridiculously high stock valuations” at AI companies that haven’t turned a profit.
He estimated the AI bubble represents roughly 260% of U.S. gross domestic product, compared with the dot-com bubble’s stock portfolio accounting for 160% to 170% of GDP at its height in the late 1990s.
“The values of many of these companies have risen thirtyfold, from the millions to the trillions,” Mr. Lachman added. “It wouldn’t surprise me if you saw a 30% decline in AI stock values over the next couple of months.”
Bill Dendy, a Dallas-based financial adviser, said Nvidia’s struggles add to the growing “risk of a big AI disappointment, just as we had during the dot-com boom” when Yahoo, Pets.com and other companies started falling apart in the spring of 2000.
“The burst wasn’t a loud pop; it was a bleed-down, and that’s often the way these things happen,” Mr. Dendy said. “It’s hard to know which companies will survive, and it’s not obvious that people need to exit until it’s too late.”
Several analysts also noted that Democrats keen on regulating AI flipped the governorships of Texas, Ohio and Georgia in the midterms.
The Motley Fool, a financial advising website, concluded in an analysis on Tuesday that the AI-led bull market “may be running on borrowed time” because these states have been focal points of “data center planning and construction.”
Contributing analyst Sean Williams noted that Texas Gov.-elect Gina Hinojosa “has vowed to put a moratorium on new data center approvals until her state’s Legislature passes laws governing electricity and water rights, among other factors.”
Two other newly elected governors, Ohio’s Amy Acton and Georgia’s Keisha Lance Bottoms, likewise campaigned on pausing or restricting data center development to protect utility rates and local resources.
Mr. Williams concluded that “the odds of an AI bubble-bursting event appear to be rising by the day.”
Many analysts have seen AI as the stock market’s next “internet moment” after the dot-com bubble fueled a rush of internet startups in the 1990s.
That bubble popped in 2000 amid rising Federal Reserve interest rates and revelations that overvalued companies were burning cash without making any profit.
Polymarket traders in mid-October priced a 7% to 11% chance of the AI bubble bursting by Dec. 31 and on Nov. 7 a 26.5% chance by June 30, according to coverage of the market’s prices. Polymarket defines a burst as “yes” if at least three of six conditions occur within 90 days. They include Nvidia closing 50% below its record high, the SOXX semiconductor ETF falling 40% from its peak and bankruptcies at major AI companies.
The Nov. 3 midterm results triggered a major AI stock sell-off two days later, which Fox Business and BBN Times attributed to fears of AI regulation after Democratic wins.
On Nov. 6, Nvidia shares closed 22% below their Oct. 6 record, and SOXX closed at 37.5% below its record, according to FourWeekMBA. Nvidia shares fell about 6% after Mr. Huang’s resignation.
It remains unclear how extensively the new governors can slow data center development.
At least 10 incoming governors have vowed data center moratoriums or new rules. According to the tracking website Data Center Watch, 43% of 74 gubernatorial candidates in 36 states supported a moratorium or ban.
According to the telecommunications market research firm TeleGeography, a Texas governor can’t impose a formal statewide moratorium without legislative approval, but could direct agencies and utilities to freeze permits and interconnections.
Arnold Platz, founder and CEO of General Future Holding, an international electronics recycling company, predicted that the AI boom would outlast Nvidia and prove more durable than the dot-com boom.
“The big buyers are profitable and the hardware is real,” Mr. Platz said in an email.
Contact the author
Please read our comment policy before commenting.