Nvidia founder and CEO Jensen Huang, the man of the moment. – Woohae Cho\/Getty Images <\/p>\n
How does it feel to be the only analyst on Wall Street who is bearish about AI superstock Nvidia Corp. NVDA?<\/p>\n
\u201cIt feels fantastic,\u201d Jay Goldberg tells me with a laugh. \u201cEverybody asks me this question.\u201d<\/p>\n
Goldberg, a research analyst at Seaport Research Partners, is the only analyst with a \u201csell\u201d or \u201cunderperform\u201d recommendation on Nvidia\u2019s stock. Of the other 65 (yes, really), 60 give stock a \u201cbuy\u201d or \u201coutperform\u201d rating and five give it a neutral \u201chold,\u201d according to FactSet.<\/p>\n
\u201cI have never told my clients to \u2018short\u2019 Nvidia,\u201d he adds, referring to the technique for trying to make money if a stock falls<\/a>. \u201cBut I\u2019ve always positioned my thesis as, \u2018Nvidia is going to underperform the sector.\u2019 And that has actually played out. If you look at the AI sector, Nvidia has underperformed since April 1 when I launched coverage.\u201d<\/p>\n Goldberg is a former research analyst at Deutsche Bank. He also worked in the tech sector. He spent a decade in China and remains in touch with former colleagues there, while staying on top of developments. One of the (many) reasons he\u2019s skeptical about Nvidia\u2019s stock at current levels is that Taiwan Semiconductor, the company that actually produces the physical chips, is already running at full capacity. \u201cThey\u2019re sold out,\u201d he says. \u201cAnd once they\u2019ve sold out, where does the upside come from?\u201d<\/p>\n But Goldberg\u2019s analysis isn\u2019t just about Nvidia stock. His thesis is important for everyone who invests in the stock market, even if they just have their 401(k) invested in broad-based index funds that track the S&P 500 SPX. When the last two bubbles burst, in 2000 and 2008, it wasn\u2019t just the investments at the center of the mania \u2014 technology stocks and housing, respectively \u2014 that tanked. The entire market went down about 50%.<\/p>\n A market is supposed to match buyers and sellers. If you run out of sellers, that\u2019s when you get in trouble. One of the oldest saws on the street of shame is that a bubble doesn\u2019t peak \u201cuntil the last bear turns bullish.\u201d (Based on the events of 1999-2000 and 2006-07, it\u2019s probably more accurate to say it doesn\u2019t peak until the last bear capitulates or gets fired.)<\/p>\n Goldberg is standing his ground.<\/p>\n \u201cIt\u2019s complicated,\u201d he says.\u201d I\u2019m getting increasingly bearish about the AI cycle, the AI bubble. I fully subscribe to this as a bubble. Semiconductors are cyclical. Eventually, gravity will reassert itself. This could end in six weeks. It could end in three years.\u201d<\/p>\n We\u2019re already at the stage where big companies, particularly Nvidia, ChatGPT-owner OpenAI and others, are providing the capital to their own customers. This so-called \u201cvendor financing\u201d was a notorious feature of the dot-com and tech bubble of the late 1990s, and dragged everything down when the bubble burst.<\/p>\n Goldberg says things could get \u201ceven crazier\u201d as companies issue massive amounts of debt to fuel their expansion. And that is starting to happen. <\/a><\/p>\n Meanwhile, the investment euphoria for the emerging technology of artificial intelligence has outstripped the proven demand from end customers.<\/p>\n \u201cI\u2019m especially nervous about the demand side of the AI trade,\u201d he says. \u201cI don\u2019t think we fully understand the use case of AI. Enterprise adoption is tepid,\u201d referring to usage by businesses.<\/p>\n A recent study by MIT found that 95% of the companies that have invested in AI have so far earned \u201czero return.\u201d<\/a> Meanwhile, up the road from MIT at Harvard Business School, the latest business review asks \u2014 with a straight face \u2014 \u201cAI Companies Don\u2019t Have a Profitable Business Model. Does That Matter?\u201d<\/a><\/p>\n