The seismic shift triggered by ChatGPT 3 years ago reminds me of 1995 when Netscape hit our screen. But as we approach the year 2000 – several “greey swans” emerged. Could 2026 be similar. This post discusses some of the possible risks looming for next year. This AI revolution has many of the hallmarks we saw some 30 years ago; i.e., creating extreme capital concentration in giants like Nvidia. As we enter what I think is a late-cycle phase, our focus shifts to systemic risks—from AI disillusionment to credit volatility.
NVDA
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Nvidia is Cheaper… But Not Cheap
Nvidia’s latest quarterly numbers were very impressive – producing 78% sales growth. They dominate the market for AI chips. A small nitpick could be the three point decline in gross margins (but that’s expected). Let’s not forget – those gross margins are still 73%. No-one else comes close in the semiconductor industry. So why would the stock tank 8.5%? Simple: expectations. The market knew that Nvidia was going to grow at revenue at least 70%+ where gross margins would be north of 70%. But growth is slowing (as they get bigger) and margins are declining (as competition starts to ramp up)
Investor’s (Valid) Capex Concerns w/AI
Large-cap tech’s planned capex for 2025 is worrying investors. What will be the return on that capital? Never before have these companies made such large bets. Before DeepSeek, it was assumed the tech giants – with their deep pockets and almost limitless resources – would enjoy a wide moat in the AI arena. And from there, that justified the high valuation multiples. Not now. DeepSeek’s arrival challenges those long held assumptions (and valuations).