Investors are watching Nvidia closely as the world’s largest AI company prepares to release its second-quarter earnings on August 26. The timing is sensitive because tech and chipmaking stocks face heightened vulnerability amid growing concerns about an AI bubble. Nvidia, with a market valuation exceeding $5 trillion, sits at the center of this scrutiny. The company built the full infrastructure stack for modern AI, not just the powerful chips that power it.
Warnings of an AI Bubble
Strategists warn that the current AI boom could burst at any moment. Dhaval Joshi, a global macro strategist, described the situation as a “rolling sequence of bubbles” rather than a single market event. He believes a software boom is on the verge of bursting because investors have realized AI poses an existential threat to traditional software-as-a-service business models. The impact is also spreading to chipmakers, who Joshi says lack “moats around their profits.” As supply and demand eventually equilibrate, he predicts astronomical margins will crash back to earth.
The Federal Reserve has added to these concerns. Minutes from the August Federal Open Market Committee meeting highlighted a downside risk to AI developments. Officials warned that a disappointment could lead to a significant repricing of stocks, which would subsequently hurt consumer spending. They also expressed worry about the increasing degree to which capital spending in the sector is being financed by borrowing, particularly through nonbank investors and regional banks.
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Research suggests this current excitement follows historical precedents. The railway boom of the 19th century, the expansion of electricity in the 1920s, and the dot-com era all saw similar patterns. Investors initially rationalized high valuations through extreme uncertainty about a new technology’s productivity. While an early adopter might seem like a “next Google” with a potentially massive upside, the risk premium eventually shifts from a single sector to the entire economy. When the technology spreads and risks become systemic, investors demand higher compensation, which historically has led to sharp declines in stock prices even if the underlying technology succeeds.
High Stakes for Tech Giants
Bets are heavy on AI adoption among the top ten largest stocks in the US market, which collectively account for 40% of the S&P 500. This massive financial commitment has fueled a surge in the S&P 500 and Nasdaq Composite over the past three years.
Despite the optimism, there is no guarantee that this extraordinary spending will pay off, and corrections in tech stocks are viewed as inevitable.
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Analysts Expect Nvidia to Beat Estimates
Brian Colello, a senior equity analyst at Morningstar, expects Nvidia to deliver another “beat-and-raise” quarter. He anticipates the company will generate well over $300 billion in data center revenue by calendar 2026, potentially exceeding $500 billion by fiscal 2028. Colello noted that the polarizing issue of Nvidia’s financing arrangements, including a $500 billion mobilization of asset managers, will likely be a focus. He trusts that Nvidia will explain the rationale behind these partnerships, though he sees no risk to the company’s moat. Nvidia’s superior GPU hardware, its software ecosystem around Cuda, and its networking and interconnectivity expertise should keep the company at the forefront of AI workloads.
Despite the stock trading at $213.05 on Nasdaq with a year-to-date gain of 13%, Morningstar still considers Nvidia undervalued. The analyst believes investors have gravitated toward other AI plays in memory and optical semiconductors, overlooking Nvidia’s position to hit its near- and medium-term revenue targets. The stock’s all-time gains of 532,525%—from below $1 in early 2016 to its current highs—highlight the dramatic shift in market perception since AI became a central topic.
