Nvidia Bubble Burst: Will NVDA Follow Lucent’s Path?

The scale of the AI bubble is staggering. Rickards cites JP Morgan’s Chair of Investment Strategy, who noted that three-quarters of gains in the S&P 500 since the launch of ChatGPT came from AI-related stocks. Without those AI-driven gains, the S&P 500 would be worth roughly half what it is today. AI expenditures accounted for 92% of GDP growth, meaning AI-related spending now contributes more to the nation’s GDP growth than all consumer spending combined.

Nvidia, which designs the advanced chips at the heart of the AI boom, became the first company in history worth $5 trillion. That single stock represents almost 20% of all U.S. GDP. As Rickards points out, Nvidia does not even manufacture its own chips. Taiwan Semiconductor and other manufacturers build them. Nvidia just draws up the designs.

Rickards draws a direct parallel between today’s AI companies and Lucent Technologies during the dotcom bubble. Lucent aggressively lent billions to cash-strapped customers to buy its equipment, booked the full sale as revenue upfront, and created what Rickards calls a feedback loop that cooked their books. The more money Lucent borrowed, the more it could loan out, the more it got back in revenue, and the more it could borrow. This is known as circular financing.

Today, Rickards argues, Nvidia is investing money in startups that then buy Nvidia’s chips. OpenAI invests in Oracle’s data center buildouts, which then use the money to invest back in OpenAI. Grace Blakeley, a research fellow, called Nvidia the central bank of AI and the lender of last resort. Michael Burry, the investor who predicted the 2008 subprime crash, has called Nvidia the Cisco of the AI boom and said this bubble is too big to save. Lucent ultimately fell from $75 to $0.76. Nortel fell from over $8,000 to around $50. Cisco collapsed from $50 to $8.

Michael Burry, the investor famous for predicting and profiting from the 2008 subprime mortgage collapse, has called Nvidia the Cisco of the AI boom. He has also said this bubble is too big to save. Burry made a $1.1 billion bet against AI stocks, which is one of the largest documented bearish positions in the sector.

The Lucent parallel is particularly apt for Nvidia. Lucent was the most widely held stock in America during the dotcom bubble, with almost 5 million shareholders. Nvidia has become one of America’s most widely held stocks today. Lucent used vendor financing to inflate revenue. Nvidia is investing in startups that buy its chips. In both cases, the result is a feedback loop that makes the business look healthier than it actually is.

Lucent fell from $75 to $0.76. The question Rickards poses is whether Nvidia will follow a similar path.

Some of the most successful investors in the world are already exiting AI stocks. Stanley Druckenmiller, who predicted the 2008 financial crisis, has sold all his Nvidia and Palantir shares. Peter Thiel, a techno-optimist and venture capitalist, sold his entire Nvidia stake. Michael Burry made a $1.1 billion bet against AI. Paul Tudor Jones has said this is so much more potentially explosive than 1999. Jeremy Grantham, who once managed over $118 billion in assets, stated: This is obviously a bubble. The probabilities it doesn’t bust are slim to none. Former SEC Chairman Gary Gensler said AI will be the center of the future financial crisis. Even Sam Altman has admitted: A lot of people are going to lose a phenomenal amount of money.

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Where to Learn More

For the complete analysis, read our AI Black Paper review covering Jim Rickards’ full thesis on the AI Minsky Moment.

Read our deep dive on circular financing in AI for the full Lucent comparison.

For a deeper dive into the bubble thesis, see our analysis of AI bubble warning signs.

Ready to explore Jim Rickards’ full research? Learn more about Strategic Intelligence here.

This is not financial advice. Always do your own research before investing.