According to the Bank for International Settlements (BIS), global financial stability could be at risk if the ongoing AI boom reverses. The bank named debt-fueled AI data center spending, opaque financing and private credit exposure as factors driving the uncertainty. BIS stated, “Financial stability could be at risk in the event of an AI bust.” The speculations of an AI bubble has seen significant subscribers in recent times, and companies like Nvidia (NVDA), Alphabet (GOOG), Micron (MU), etc., could face the brunt of the matter if things go south.
BIS is not the only ones expressing concerns around the possibility of an AI bubble. According to a Bloomberg report, Chinese hedge fund managers also share a similar sentiment. Wealspring Asset founder Yang Dong calls the ongoing AI boom a “super bubble.” Dong believes that a collapse is not very far away. Shanghai Banxia went further and said that “The trigger for the AI bubble to burst has already appeared.“
Should You Sell Your Nvidia Stock In The Possibility Of An AI Bubble?
The factors that have led many to believe that we are in an AI bubble include huge capital spending, high valuations, and flood of AI start ups, among others. The scenario is similar to the dot com bubble of the late 90s.
While the worries about a possible AI bubble are very real, there are stark differences between the dot com bubble of the late 90s and the current market situation. The most significant difference is that companies today are delivering real profits, while providing real services to public demand.
Also Read: Nvidia Stock Below $190, Bernstein Reiterates Its ‘Buy’ Call (NVDA)
Moreover, the AI giants of today, such as Nvidia, Microsoft, Meta, Google, etc., have massive cash reserves that could cushion extreme volatility. According to PNC Asset Management Group chief investment officer Amanda Agati, “We don’t view this as a bubble that’s likely to pop anytime soon, just a rally that has just gone on and on and on, seemingly unabated.“
Therefore, considering both sides of the argument, selling your Nvidia (NVDA) stock may not be the best option. Instead, you could hedge your investments, so that you are protected in the possibility of an AI bubble burst.