NVDA is kind of in a no-man’s land in terms of sentiment and price action, bouncing in a tight range for months and some mix of bullishness and skepticism depending on who you ask. Here I figured I’d put out the bear case which I’m starting to warm up to.

Recently Meta stock has been in a significant downtrend. The last time Meta was spending wildly while the stock collapsed was during the development of the metaverse, which they had hired tens of thousands of employees to support. When pressure mounted from prominent shareholders, Zuckerberg did an about face and essentially shut down development. If the selling continues, I do believe there will be a reckoning and pressure will mount for Zuckerberg to show return on investment. This is not new, as recently Meta has turned up the profit spigot by showing more ads which was a clear effort to justify the AI investment. But now the stock is sliding again. Eventually if the stock of Meta and other hyperscalers falls enough I believe they will be required to cut spending which would be hugely negative for Nvidia. Keep in mind it wouldn’t necessarily have to be a 180, but rather just a reduction in spending.

Another issue is the foundation model companies like OpenAI and Anthropic. Both companies have reported massively growing ARR, but I believe much if not the vast majority of this revenue is coming from enterprise software companies that have incorporated these services into their products and have decided to eat the cost up front. It’s not clear that there will be increased purchases to offset these costs. Here again, I don’t think it’s going to be long before these companies reduce AI spend as the prices collapse. That is sort of a second derivative to NVDA, but if OpenAI suddenly sees a drop in revenue, they will become even more cash-strapped.

Finally, although I don’t like to throw stones, in the past few days I’ve noticed that certain personalities who enjoyed massive success on the podcast circuit over the past couple of years are hugely bullish all of a sudden. It sounds dickish and a stupid reason to be short but I do believe nobody succeeds forever and individual investors go through cycles like everything. As Bruce Kovner said, there are a lot of one hit wonders in the stock market.